July natural gas futures soared Monday as traders discarded less-than-encouraging weather forecasts, ample storage supplies and a declining rig count that has failed to make a dent in production for largely technical factors.

July natural gas futures jumped 32.5 cents to settle at $4.182 and August added 31.1 cents to $4.382. Curiously, the other oft-mentioned drivers of natural gas prices, crude and equity markets, recorded hefty losses. July crude oil fell $1.42 to $70.62/bbl and the Dow Jones Industrial Average retreated 187 points to 8,612.

With fundamental factors still on the negative side of the ledger, traders will often turn to the technical dynamics of the market to determine the market’s next direction. Trends are often analyzed by traders and in some cases massive funds can be deployed in the natural gas market by hedge funds and others that do nothing more than analyze the price momentum of the market with little regard to fundamentals.

“If one day there is access to the data and it is possible to determine the participation in the market by different customer classes, you will see an enormous growth in speculative interest, particularly in certain types of speculators, these massive funds that are purely trend driven,” said a manager with a prominent California gas marketer.

“When the market starts moving and you have a massive component of the market that basically reacts to [price] momentum rather than fundamentals, it just makes sense that those guys are going to exacerbate the volatility. You don’t have to be a Nobel [prize winning] economist to figure that one out.”

One such fund that has caught the attention of traders is the United States Natural Gas Fund (UNG), which has seen its assets swell to $3.7 billion from $2.6 billion just earlier this month and from about $670 million in February (see Daily GPI, June 12; June 4).

The open-ended exchange-traded fund is a pure play on natural gas prices with a substantial portion invested in the front two natural gas futures contracts. UNG is clearly suffering growing pains, in large part due to a huge influx of speculative money. At the end of last week the fund had approximately 120 million shares in reserve, but that could be consumed in as few as 10 business days.

The central issue, many say, is whether purely speculative participants should be allowed unfettered access to the price determination mechanism of a commodity, which is such an integral component of the nation’s energy portfolio.

Typically a prominent price driver, weather factors at present offer only minimal price support as near-term forecasts present a mixed bag with mainly seasonal temperatures forecast for the populous East and Midwest energy markets. In its recent six- to 10-day forecast MDA EarthSat sees abundant heat in the Midwest yet coastal areas of the country are expected to remain normal to below normal.

“While the strongest heat will have passed on days four through five, the Midwest will continue to see plenty of above normals in this time frame with ridging remaining the dominant feature. With a ridge in the central U.S., both the West and East coasts will continue to see chances for cool troughing,” the forecaster said in a morning report to clients. The troughing is expected to keep temperatures at or below seasonal norms, and the West Coast trough should weaken late and slowly be replaced by warm ridging, however, allowing the Southwest to gradually heat up. “The East Coast trough appears strongest (coolest) mid-period, before weakening by day 10.”

Prior to the open, traders were scanning the horizon for weather events that might help advance prices [and establish better sell hedges]. In Monday’s trading they got more than what they wished for. “We are still looking for any weather-related news that would cause a small rally in natural gas,” said Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm.

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