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Hedge Funds Supporting Market, Analyst Says, Yet July Called Flat

July natural gas is expected to open unchanged Monday morning at $4.71, even though analysts suggest that prices may be poised to test the mid $4.80s. Overnight oil markets firmed.

Risk managers are counseling those with market exposure to hold on to current positions. "Fundamentally, the natural gas market is mixed. Storage levels are 40% lower than last year, but U.S. domestic production hit another record level this week, and the EIA is projecting natural gas supply to outpace demand by 2015," said Mike DeVooght, president of DEVO Capital, in a weekly report.

"The EPA announcement of a proposed mandate to cut carbon emissions by 30% by 2030 puts added pressure on coal-fired power plants and supports the argument that natural gas is the fuel of the future [see Daily GPI, June 3]. It is hard to determine the immediate impact this mandate will have on natural gas prices. On a trading basis, we will hold current positions."

He advises trading accounts to "hold short June futures (rolled from April sold at $5.00-5.10) [and] End-users stand aside." Those vulnerable to lower prices are counseled to hold short the balance of two summer strips. One initiated at $4.20-4.30, and a second at $4.50 for an increased position.

Analyst Alan Lammey of WeatherBELL Analytics said, "For the most part, long hedge funds are keeping upside pressure on prompt-month gas futures. And it's likely there will be continued strength in prices for at least the near-term (this week) for prices to potentially test the $4.85 area.

"While the market bears are pointing to the last several week's of robust natural gas storage reports as a catalyst to keep prices from rallying too much, its important to note that so far this injection season, only about 96 Bcf of additional natural gas been injected into inventories over the first couple of months of the refill season. Looking ahead, as temperatures begin to ramp-up during the rest of the hotter months of the summer, the market will be able to better determine if the recent additional wellhead production, now solidly near 76 Bcf/d, will indeed be a saving grace or not to the overall supply perspective."

Industry consultant Genscape reported changed flows into the Midwest. "While the overall level of Midwest imports remained unchanged year-on-year, the distribution of the imports by pipeline has changed," the firm said Monday morning. "The Midwest is receiving more gas from Great Lakes, NGPL, Northern Natural, and Midwestern while receiving less gas from REX, Northern Border, and ANR. Midwest imports from Upper Rockies have decreased year-on-year while imports from Canada have increased."

Physical buyers on Midwest pipes might be scarce as hen's teeth for Tuesday volumes as both heating and cooling requirements are likely to be nonexistent. The Weather Channel reports maximum temperatures in the area right around 65 degrees, i.e., the point at which degree day tallies begin. Minneapolis' high is seen at 69 degrees, while Chicago is forecast to see 62, and Milwaukee 66.

The National Weather Service in its 8 a.m. EDT report said it did not expect any tropical cyclones in the Atlantic, Caribbean or Gulf of Mexico in the next five days.

In overnight Globex trading July crude oil rose 77 cents to $103.43/bbl and July RBOB gasoline gained two cents to $2.9576/gal.

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