With the June contract showing weakness in the Sunday overnight Access trading session, one might have expected that June’s $6.225 Access low might have left the basement door wide open for more exploration. That assumption would have been wrong Monday, as June natural gas rallied during the regular session to peak at $6.47 just prior to noon EDT.
Backing off a little in the afternoon, June natural gas ended up settling at $6.407, up 6.4 cents on the session. Part of natural gas’ rally was attributed to strength from July crude, which traded its first day as prompt month. The July crude contract made it as high as $49.50/bbl Monday before settling at $49.16/bbl, up 51 cents.
“I don’t think [Monday] amounted to much,” said ICAP Energy broker Brad Florer. “There was a little bit of a bounce as this natural gas futures market is clearly oversold. I think the shorts are running out of momentum. However, I still don’t think there are enough fundamentals out there to generate any real buying here. That is the problem.”
He noted that the shorts are still driving this market, whether it is by short-covering or just pressing the market lower. “The trend is still downward until we see something bullish happen such as [summer heat] or somebody deciding that crude has finally put a bottom in here for now and has turned back up.” The broker added that lower natural gas storage injections could also force the switch to the upside, “but that doesn’t look like it is going to happen for a couple of weeks. The weather is gorgeous all over the country,” he said.
“All of that added together makes it hard for any strength to gain any momentum. The downside is just going to continue to grind.” He said that $6.11 is the next support area on the downside, noting that “strong bears” would probably like to see $5.80 before it turns around. “After all that — as we get into summer — I think traders will start to square things away and see where this thing really wants to go next,” Florer said.
A Washington, DC-based broker said natural gas futures and the petroleum complex all seemed to be under “some sort of pressure” over the weekend, which opened up new support lines on the way down.
“We are coming into another area of really significant support on the June natural gas chart,” the DC-based broker said. “We have been looking at levels of support to come in at $6.20 and $6.10, with a major support line at $6.14.” The broker noted that there have been at least eight closings near the $6.14 level.
“We think that is going to be a very important level. By and large, we are still playing on the short side here,” the broker said. “There has been some effort to rally the market, but natural gas has been really weak for some time now. As a result, we don’t yet see the forces accumulating to bring this market higher, particularly in view of the fact that the liquids are also in a pretty strong downtrend.”
Looking ahead to the Memorial Day holiday weekend schedule, the Energy Information Administration said that its natural gas storage report will still be released at 10:30 a.m. EDT on Thursday. The energy markets on the New York Mercantile Exchange will close at 1 p.m. EDT on Friday (May 27) and will be closed for Access trading over the weekend and during the regular session Monday (May 30).
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