The natural gas market made it four in a row Thursday as prior-day screen support and chilly temperatures in a number of regions around the country led to cash point increases at a vast majority of locations.
While a few spots dropped a couple of pennies and a few more were unchanged on the day, a vast majority of cash points added between a few pennies and 12 cents. The gains were fairly well spread about the country leaving no particular region highlighted. Early cash trading Thursday saw averages much higher than during the afternoon.
“Everything cratered toward the end of trading Thursday. The cash market couldn’t keep up with Nymex,” said a Midcontinent trader. “Cash averages in the Midcontinent still gained, but we sold gas early Thursday at $4.11 and it traded as low as $3.98 later on. The range was pretty wide. The weaker afternoon might not bode well for Friday’s trade for the weekend and Monday.”
The trader noted that an epic battle between the financial and physical markets continues to be waged.
“The financial market is telling us that gas should be $4.20 to $4.15, while the physical market believes gas should be below $4,” he told NGI. “There is a big tussle currently going on and no one is sure who is going to win. I’ve been trading for the last 25 years and I still can’t explain why I’m selling gas for $5 one day and $10 the next.
“I’m pretty good at picking tops and bottoms, but as for day-to-day moves, it’s mostly a mystery. Natural gas futures went up to $4.41 Thursday following the storage report. What the heck is that all about? If you were short, you got caught out pretty badly.”
The streak could be extended Friday for a full week of cash gains following Thursday’s news from the Energy Information Administration that 94 Bcf was injected into underground storage for the week ending May 7. Sparked by the report, June natural gas futures reached a high of $4.414 before closing out Thursday’s regular session at $4.339, up 5.5 cents from Wednesday (see related story).
However, the Midcontinent trader wasn’t so confident going forward. “The bottom line is there is an awful lot of gas out there, so I think cash points will likely retreat Friday. The volatility is high and the demand just isn’t there. The variation over the last nine days in the Midcontinent is ridiculous. We’ve seen gas at $3.65 all of the way up to $4.11. That’s a 46-cent range on quiet fundamentals. Nothing has changed here to warrant that kind of movement.”
Even though the injection turned out to be larger than both last year’s date-adjusted 93 Bcf build and the five-year average addition of 84 Bcf, the report was bullish when compared to industry estimates, most of which were for an injection between 98 Bcf and 110 Bcf.
Some market watchers were not reading too much into on bullish storage report.
“Be careful! Slightly lower storage injections in the first half of the month will likely be made up by heavier builds in the second half,” said Teri Viswanath, an analyst with Credit Suisse. “The unexpected outbreak of cold weather through last weekend and into the early part of this week will likely lead to yet another muted storage injection for next week’s release. However, given the relatively mild weather forecasts for the balance of the month, we think that the industry will likely record heavier builds for the second half of the month.”
From her point of view, Viswanath said the current lofty price level does not seem well supported. “June 2010 prices have indeed moved back toward last month’s high and are now in a range that we deem to be unsupportable by near-term fundamentals. We, therefore, recommend that investors look to short the June 2010 contract and remain in this trade until the contract moves back below $4.10.”
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