Natural gas futures carved out a modest gain Wednesday as aggressive fund trading managed to prevail over short-term traders looking to sell the market lower. At the close May had gained 4.3 cents to $4.141 and June was up 3.8 cents to $4.206. May crude oil added 86 cents to $107.11/bbl.
Short-term traders saw a lot of volume. There were thousands and thousands of contracts traded TAS [Trade at Settlement], and it looked like one side was Goldman [Sachs], but I don't know who was on the other side," said a New York floor trader.
"For right now the thinking is $4 support will hold, but there are a few people that I am talking to that agree that any jump higher is an opportunity to sell it again. They think eventually the market will break, and maybe they will wait until this roll[ing of contracts] goes," he said.
"As long as the market stays above $4 the large traders will just keep it moving sideways, but if it jumps higher, they will sell. Prices could move to the mid $4.20s and still be a place you would want to sell it." When queried where the large traders might bail if prices started a concerted move higher, he said, "Probably if it breaks over the $4.29 to $4.33 area, there may be a change of opinion. That may scare them out of a position, but at some point they will look to regroup and sell."
Other traders aren't so sure of a move lower and are biding their time until the market reaches pre-determined market entry points. "This looks like a trading market to me. I just don't see much direction," said an Oklahoma City trader.
The trader characterized the market as "just treading water" and "it probably wouldn't take too much [market action] to generate a buy or sell signal [utilizing his trading program], 25 to 30 cents in either direction because it is wound so tight.
"$4.25 to $4.40 is a pretty good estimation of what it would take to generate a buy and $3.70 to $3.75 in that area [for a sell]. One way to play that range would be to sell put and call options above and below the market," he said.
"Natural gas is ignoring everything. It is ignoring the equity markets and the crude and is marching to its own beat. The market is waiting for something. It's not going to trade in this range forever, and if I had to make a guess I would say it would break to the upside," the trader said.
Analysts "guesses" for the week's inventory report are tightly bunched. IAF Advisors of Houston forecasts a build of 41 Bcf and a Reuters poll of 29 analysts revealed an average 34 Bcf with a range of a 20-45 Bcf injection. Bentek Energy utilizing its North American flow model, expects a build of 39 Bcf. Bentek predicted the East Region would add 14 Bcf, the West Region 1 Bcf, and the Producing Region 24 Bcf.
These numbers will be compared to last year's 79 Bcf build and a five-year average of a 28 Bcf increase.
Some analysts are rejecting the idea that what appears to some to be an oversupplied market is ready to work lower. According to Peter Beutel of Connecticut-based Cameron Hanover, there are those that "feel that prices had a late-winter rally based on some colder temperatures and some hype from Japan. And they see a well supplied market with no logical reason to advance from existing price levels. We tend to see things differently. We do not see any imminent threat of there being a supply burst, where supplies suddenly overwhelm available demand and push price quotes significantly lower. Those may seem ready to occur in some observers' eyes, but we do not feel that it is especially likely to happen."
Students of energy demand and the economy got a clearer picture of underlying economic conditions and energy consumption with the 8:30 a.m. EDT release of retail sales by the Commerce Department and the 10:30 a.m. EDT report by the Energy Information Administration (EIA) on petroleum inventories.
The March report on retail sales showed sales slightly lagging expectations. Prior to the report analysts were expecting an increase of 0.5% following February's 1.0% surge, but the actual figure came in at a gain of 0.4%. On a year-to-year basis retail sales are approximately 9% higher.
Crude oil inventories were expected to have risen and gasoline stocks declined in the weekly report by the EIA on petroleum inventories. A Bloomberg survey of 16 analysts revealed an anticipated 1 million bbl decline in gasoline supplies and a 1 million bbl rise in crude oil, but the figures came in at a build of 1.6 million bbls of crude oil and a bullish 7 million bbls draw on gasoline. Any decline in inventories greater than estimates or build less than what the market expects could be interpreted as a sign of unanticipated energy demand and a strengthening economy.
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