After breaking above $12 on three separate occasions in recent trading but failing to hold on for the all-important $12-plus close, July natural gas futures on Tuesday completed the task, which could open the door for further advances. The prompt-month contract closed Tuesday’s regular session at $12.221, up 25.2 cents from Monday’s close.

The July contract put in a new high for the move of $12.376 in overnight Monday trade, then almost revisited the mark with a Tuesday regular session high of $12.365. Tuesday’s surge in prices were attributed to hotter temperatures in various regions of the United States, a percolating tropical weather environment and continued fund short-covering.

“We have people in this market — probably some funds — who are trading this market for the first time and are likely making moves off of weather rumors. It is no secret that it is the beginning of the hurricane season and we already had a storm. Early could mean often,” said Tom Saal of Commercial Brokerage Corp. in Miami.

“Settling north of $12 is a big deal. We have been climbing this ladder over the last couple of months. We settled above $9 a couple of times and then went to $10. We settled above $10 a couple of times before moving on to $11. Now we settle above $12, but we will have to see if it has staying power. It was supported by pretty strong cash prices, so it is not like it’s divorced from the physical market. People are paying these elevated prices for natural gas. That is the scary part.”

Saal also saw the funds supporting the rise in natural gas futures on Tuesday. “It looked like a continuation of Monday’s short-covering rally by the funds that we saw using Market Profile. They are still heavily short natural gas futures and they might have been getting out of some of their positions. The funds, who were long crude oil futures and the other petroleum products, likely were getting out of some of those positions because all of those contracts went down. The funds have got to be aware that the federal government is going to be looking over their shoulders. They may not like that increased supervision, so maybe they are lightening their positions.”

“Upcoming cooling needs and the first named tropical storm of the season have provided the main impetus behind this week’s rally,” noted Jim Ritterbusch of Ritterbusch and Associates. He added that tropical storms and hot weather were nothing out of the ordinary, but “we would reiterate that this year’s price response to weather events will be much more pronounced than was the case during the past couple of years when storage levels were considerably larger than present supplies.”

Forecasters see conditions in place for an active tropical season. “This spring sea surface temperature anomalies continue to rise to unusually warm levels across the Gulf of Mexico, Bahamian waters, most recently the northern Caribbean and especially the eastern Atlantic (between Africa and the Caribbean),” said New York-based forecaster Weather 2000.

It went on to say that the “long-term average of the first tropical storm of the season is June 21, and for the first hurricane it is July 29. The first storm of the 2008 hurricane season, Arthur, formed on May 31; hence everyone should really start to mentally prep themselves for the 2008 hurricane season as conditions are ripe for earlier-than-average development.”

Prep indeed. “We are maintaining a bullish trading bias in the market and would suggest trading it strictly from the long side. We suggest holding a base or core long position but we will await a major price pullback to the $11.000-11.500 zone before reestablishing a more aggressive or investment-type bullish holding,” said Ritterbusch.

Forecaster AccuWeather.com reports no active tropical systems but says it is following disorganized showers and thunderstorms over the western Caribbean as well as two tropical waves, one at 32W and 17N and the other at 57W and 17N. Both are moving to the west at 10 to 15 knots. The first wave shows limited convection, and “satellite images show no organized thunderstorms” with the second.

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