Natural gas futures Friday had the trajectory of a hot-air balloon without enough fuel to remain off the ground. Prices rose initially but ended the day in negative territory as efforts by local and short-term traders to push the market higher failed. The April contract fell $0.038 to $7.290 and the May contract slipped $0.010 to $7.457.
“We saw some fund selling in the May contract. It looks like the funds are still willing to push the short side of the market,” said a New York floor trader.
Futures opened sharply higher with the April contract reaching $7.490, but the enthusiasm quickly waned. “Once prices made the highs of the day in the early going, the bulk of the day’s trading volume appeared on the sell side in the April and May contracts. The market was bid higher with small volume orders, but receded when the large trade and commercial sell orders appeared,” he noted.
He added that appearances can be deceiving. “Although the market is only down by 4 cents, it had the feel of much greater losses. The locals were playing it from the long side, but in terms of putting on large positions, that was all done on the short side,” he said.
“I am still bearish. I don’t buy into these rallies,” the floor trader asserted. He said the rallies were primarily local and short-term traders trying to activate buy stops at higher prices, but “they aren’t getting the follow through. I expect a weak open Monday if nothing happens over the weekend.”
Others also are unconvinced that the market is ready to rally. “It’s a little early to say that something fundamentally had changed in the natural gas market,” said a Rocky Mountains trader. He noted that storage supplies are 724 Bcf above the five year average and “it’s amazing how much gas is in storage and what it is priced at. If you had said two years ago that the market would be at $7.32 with this much gas in storage at this time of year, people would be laughing at you.” He placed technical resistance in the April contract at $7.40 with fund and managed account short covering at $7.70.
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