All-time record crude futures prices combined with near-term cold forecasts and short position-covering by the funds to propel prompt-month natural gas futures north of $9 on Tuesday for the first time in nearly 15 months. Continuing what began during the Globex-only trading session on Monday, the March contract reached a high of $9.005 during Tuesday’s regular session before closing at $8.977, up 31.7 cents from Friday’s close and the highest prompt-month close in almost 25 months.
The $9.005 tick was the highest since Nov. 30, 2006, when the front-month contract posted a high of $9.050. A prompt-month contract has not closed higher than Tuesday’s $8.977 since a $9.316 finish was recorded on Jan. 31, 2006.
Crude futures were also off the charts on Tuesday as the normal foreign supply fears were magnified by talks of an OPEC production cut and a Texas refinery blast. March crude hit a new all-time high of $100.10/bbl before closing out the day at $100.01/bbl, up $4.51 from Friday’s close. The previous high of $100.05/bbl was recorded on Jan. 3, 2008, while the previous high for a settle of $99.62/bbl was recorded one day prior.
“The natural gas market is looking more and more like a technical squeeze, pressuring the funds to cover the large speculative short positions confirmed by Friday’s CFTC Commitments of Traders data,” said Tim Evans, an analyst with Citigroup in New York. During the week from Feb. 5 to Feb. 12, the Commodity Futures Trading Commission noted that noncommercial traders reduced their net short positions by 19,761 to 92,348. Whether the funds have continued to cover their short positions in a wholesale-like fashion will be revealed in the commission’s next report on Friday.
Evans noted that weather continues to play a muddled role. “Heating demand, although clearly sufficient to contribute some element of support to the market, continues to look moderate overall,” he said. “With the western U.S. warmer than normal in early March, we also think the market will soon be able to focus on the approach of spring and the end of the storage withdrawal season. For now, though, the natural gas market is joining the petroleum complex in rallying while the rallying is good.”
The Frontier Weather six- to 10-day outlook for Feb. 24-28 calls for above-normal temperatures for portions of the West, below normal in parts of the central U.S. and normal readings elsewhere. In the 11- to 15-day forecast covering Feb. 29 through Mar. 4, temperatures are expected to average warmer than normal for nearly all of the U.S. west of the Mississippi, while normal conditions are expected for most of the East.
Although floor trading was closed Monday in observance of the Presidents’ Day holiday, electronic Globex trading continued. Market technicians took note of Monday’s gains.
“Monday retreated from an $8.889 high to a bearish shooting star [candlestick] top on the daily chart. That is the bearish news. The bullish news is that Monday was another up day,” United Energy’s Walter Zimmerman said Tuesday morning. From a technical perspective if the bears are going to prevail, natural gas will have to reverse lower. Otherwise, “if natgas is unable to sustain a reversal lower from here then $9.225 becomes our minimum near-term target with $10.200 to $10.460 the next objective above that,” he said.
The market strength also has some short-term weather underpinnings. If the AccuWeather.com forecast is correct, eastern energy markets can expect cold winds blowing across the Great Lakes to bring lake-effect snow to eastern points while an Alberta Clipper will open the door to waves of progressively colder air on Wednesday. Although temperatures on Monday in the major East Coast cities were in the 60s and 70s, “waves of cold air will follow the clipper into the East,” said AccuWeather.com’s Steve Penstone. Washington, DC’s normal high of 48 is forecast to drop to 42 by Wednesday, and in New York City the normal high of 42 is forecast to fall to 36, the forecaster said.
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