Trading within a very slim 13-cent range, May natural gas futures on Wednesday turned in yet another uneventful session as market fundamentals remain quiet. After putting in a low of $6.770, the prompt month went on to settle at $6.808, down a dime on the day, as the market awaited fresh storage news Thursday morning.
“While the natural gas market was a little bit of a snoozer on Wednesday, the liquids markets were a little more exciting,” said a Washington, DC-based broker. “We really saw a bullish products inventory report Wednesday and we will have to see what natgas comes out with Thursday.”
May crude took a break from the upside Wednesday, dropping 36 cents to close at $68.62/bbl. However, May heating oil and May unleaded gasoline both kept climbing, increasing by 1.91 cents and 3.67 cents, respectively, to close at $1.9746/gallon and $2.0911/gallon.
As for natural gas, the recent range remains intact. “We remain stuck within the $6.65 to $7.65 range on the May contract and the market hasn’t yet found a way to break out yet,” the broker said. “On a technical analysis break, we could move $1 in either direction of the range. If we broke through $7.65, I could see us getting up to $8.65 pretty easily. On the downside, we could see $5.65 technically, but my bias remains to the upside.”
The broker said he continues to hear people say that traders are still playing the short side on the market, but he doesn’t think they are doing it with any force. “On the other hand, the buyers we represent haven’t been getting too greedy and pulling back. Several months ago I had guys with GTC [Good ‘Til Cancel] orders to buy and then they would lower their bid by 50 cents due to the way the market was collapsing. They would move a whole strip of orders that way. I have not seen that happening recently. Most of the time they come in and buy it at the market when they think they like it.”
He noted that the change in sentiment on the buyers side may hold some importance. “Before, the buyers retreating backwards really created a deflationary effect on pricing,” the broker said. “That behavior by the buyers does not seem in evidence any more, which is why I am modestly bullish. It is also why I think that $6.65 was probably a double bottom.”
As for whether $4 gas is gone forever, the broker said that is likely the case, despite what some reports contend. “The big belief that a global LNG market by 2009 will correct this high-price phase of the past few years does not convince me,” he said. “China is in a similar situation as the U.S. Right now, their demand for natural gas outpaces their ability for domestic supply. While they have an awful lot of coal, they also want a clean and efficient fuel source as well, so they too can buy LNG cargoes from Bahrain or the Gulf. I was talking to one buyer client who admitted that his company was outbid by the Chinese for LNG cargoes, so I am not so sure that LNG is a guaranteed cure for high prices.”
The weather picture for the summer continues to take shape. In its updated summer 2006 outlook, MDA EarthSat Energy Weather said it continues to favor seasonal to cooler than normal conditions for the eastern half of the U.S. and warmer than normal across the West. According to Matt Rogers, deputy director and meteorologist, “Summer [is] still trending cool, but La Nina and drought are key issues.”
He added that March rains have lessened the severity of the drought from Texas to Illinois. However, little rain has fallen on the East Coast during the last month, and this is an area that needs to be monitored closely. Rogers also noted that low soil moisture conditions tend to enhance high temperatures.
On the topic of the tropical storm forecast, he said, “We are still expecting a very active tropical season with 19 named storms anticipated.” He warned that the sea surface temperatures in parts of the Gulf of Mexico are already warmer versus this same time last year but farther out in the Atlantic, some areas are actually cooler when looking at a year-on-year comparison. The Atlantic Multidecadal Oscillation (AMO) also points to an active season. The AMO has been in an active phase since 1995.
While summer temps and storm activity are still a ways away, traders are looking to Thursday morning’s Energy Information Administration gas storage report for their next trading clue. Activity for the week ended April 7 is expected to reveal the industry’s first injection of the new year. According to a Reuters survey of 25 industry players, an average of 27 Bcf was expected to be injected into underground stores last week. The ICAP derivatives auction revealed a consensus injection of 31.4 Bcf.
“[The] injection season has kicked in with a vengeance,” said Golden CO-based Bentek Energy. Bentek’s storage sample indicates an injection of 38 Bcf took place last week, well over the five-year average injection of 8 Bcf and the five-year high withdrawal of 2 Bcf. Last year for the similar week, 39 Bcf was added to underground stores.
In observance of Good Friday, Nymex will be closed Friday.
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