NGI Archives | NGI All News Access
As Futures Stall, Direction Remains in Question
Trading within a slim 18-cent range Wednesday, April natural gas futures looked unsure of their direction, calling into question recent talk that last week’s $6.450 low represented a bottom for the move. The prompt month was unable to build on the week’s earlier significant gains while also failing to break back below the psychological $7 level. April natural gas closed at $7.143, down 2.4 cents.
After putting in a $7.030 low in morning trade, the prompt month climber higher in the afternoon to record a $7.210 high, which provided resistance. With record levels of gas in storage and winter all but over, the debate continues as to whether last week’s low represented a bottom for the down move from the $15.780 high back in December 2005.
“I’m not quite ready to jump onboard that train just yet,” said Brad Florer, a broker with ICAP Energy. “I’ve heard some people say we’ve seen the bottom but I don’t think it is a majority of people by any means. The market is so oversold, and it is having such a difficult time pushing below this range we have been in. While we have been down here, we have received some bearish news and we still can’t fall further, so some people are wondering if maybe this is it for the downside.
“However, the thing you have to remember is we have yet to see a big washout day,” the broker added. “This whole break lower has been nice and orderly. Now we find ourselves in this range just sitting here. I am still waiting for the big washout day when everyone finally dives in and says it is going lower. We don’t always get the big washout day, so $6.45 could end up being the bottom…but I just don’t see it. With as much gas as we have out there and some places already injecting, I don’t see how anyone can get behind a rally at this point. On this rally of the past couple of days I have yet to see any buying. All I have seen is short-covering.”
Florer said he believes this week’s bounce was primarily motivated by the rally in crude. “April crude started coming off a little bit on Wednesday and natural gas drifted with it,” he noted. “In the absence of anything extreme happening, natural gas futures will probably continue to flounder as far as direction, latching on to easy things to follow such as crude.”
Crude did appear to lead the way during the first two days of the week. During April natural gas’ 52.1-cent bounce on Monday and Tuesday, April crude jumped an astounding $3.14 a barrel. On Wednesday, crude slumped 93 cents to close at $62.17/bbl, and natural gas futures lost some of its strength as well.
A Nymex floor trader expanded on the on-again, off-again linkage with crude oil following Tuesday’s advances across the board. “I just think there are a number of shorts out there and with the crude and products higher, it pushed the front end of the [natural gas] board up,” he said. “The back months didn’t do much at all.”
Surprisingly enough, Florer said the current storage supply glut is actually lending strength to natural gas futures as well. “Some of the strength we are seeing right now in the short term is driven by storage,” he said. “I think the spread between the first couple of months and winter is so wide right now, people are unwilling to sell gas on hand. They would rather go to the market and buy it now while keeping gas in storage. Why would anyone pull it out now? I think that is giving a little bit of support to the prompt month.”
Looking at Thursday morning’s natural gas storage report, Florer said it looks like the Energy Information Administration will report that 40-60 Bcf was removed from underground stores for the week ended March 10. “While the current surplus makes these reports not as important, I think they still could be helpful for bulls,” he said. “Bulls would like to see a crazy withdrawal to the upside that would generate enthusiasm on the buy side. I just don’t see that happening, though.”
A Reuters survey of 22 industry players believes storage levels will fall by approximately 60 Bcf for the week ended March 10. Wednesday afternoon’s ICAP-Nymex storage options auction is calling for a 58.6 Bcf withdrawal for the week.
The number revealed Thursday morning at 10:30 a.m. EST will be compared to last year’s 101 Bcf withdrawal and the five-year average pull of 79 Bcf.
©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2024 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |