It was difficult for traders to draw any useful conclusions about market direction Tuesday as the April contract expired. For the moment an atmosphere of caution permeates the bullish camp as traders look for Monday’s highs to be breached before making additional buys. At the end of the day April had shed 13.4 cents to $4.240 and May lost 18.5 cents to $4.263. April crude oil rose 81 cents to $104.79/bbl.

Traders trying to execute orders on the final day of trading in the April contract described the situation as something of a “nightmare.” They saw little in not only the expiration of the April contract but other delivery months as well that one could derive any meaningful conclusions from.

“Trading is really messy. It’s something of a quagmire in terms of getting a good sense of [market] direction,” said Eric Bentley, CEO of VKNG Energy LLC in New York.

“Monday’s rally, which took April as high as $4.48, was out of fear that the market was going to $4.50 or higher along with options expiration, but that never came to fruition. The market hit a wall there. There was lots of liquidity at $4.47 to $4.48 and the market took about a 12-cent drop in the last four minutes. Trading Tuesday was really squirrely. There are a lot of people sitting on the sidelines trying to stay out of harm’s way.”

It was Bentley’s conclusion that traders were waiting for Tuesday’s $4.48 high to be taken out before initiating any further purchases. “Fundamentally this market has a lot of hype and no action. Certainly the situation in Japan is a big question mark and has thrown a big monkey wrench in the wheel. Also, there is a lot of storage, and once we get into spring with a more temperate climate across the country, prices may struggle,” he said.

Phil Flynn of PFGBest in Chicago is wary that further natural gas gains are not in the cards at least in the short run. “The supply that was not supposed to ever dip below year-ago levels saw supply give in after this brutally cold winter…Now with the hurricane season ahead of us and a lingering winter, natural gas has put in a good performance. Still, beware of a correction as winter should end eventually!” he said in a note to clients.

Top analysts see the market contango as attractive to longer-term shorts. Jim Ritterbusch of Ritterbusch and Associates said, “The ability of the institutional accounts to roll positions into the sizable forward price premiums will only enhance the appeal of the short side of this market for long-term or investment-type participants. However, this won’t necessarily exclude occasional price rallies of as much as 10-20% as the fund community liquidates bearish holdings in response to chart improvement.”

Whereas earlier estimates of season-ending inventories were above 1.6 Tcf, the colder weather forecast for the East and Midwest looks like storage refill will begin from a level closer to 1.5 Tcf.

Heating requirements forecast by the National Weather Service (NWS) confirm predicted colder weather for eastern and Midwest energy markets. For the week ending April 2 NWS expects New England to have 195 heating degree days (HDD), or 20 more than normal, and New York, New Jersey and Pennsylvania are forecast to endure 191 HDD, or 37 more than normal. The Midwest from Ohio to Wisconsin is expected to shiver under 200 HDD, or 40 more than normal.

The forecast for April 2 carries forward the trend from the week ended March 25. For that period New England received 223 HDD, or 33 more than normal, and the Mid-Atlantic endured 206 HDD, or 36 more than normal. The Midwest saw 185 HDD, or eight more than normal.

In spite of Tuesday’s decline Ritterbusch anticipates the need for a strong pricing environment to attract gas into storage. “While this [cooler weather] doesn’t rule out some usual April storage injections, it does suggest an expanding year-over-year supply deficit that will require a higher pricing environment during the second and third quarters of this year that will be needed to pull product into storage. Looking ahead to Thursday’s storage report, a small supply withdrawal similar to last week’s number would appear likely.”

IAF Advisors of Houston, however, is forecasting a build of 13 Bcf.

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