After showing strength for a majority of Monday’s session, May natural gas futures appeared to be ready to continue Friday’s upswing. However, met with some long liquidation and influence from the petroleum futures complex, the prompt month began to sell off in the afternoon, settling down 4.2 cents at $7.153, just above the $7.14 low of the day.

Petroleum futures followed a similar curve Monday, with June crude closing 82 cents lower at $54.57/bbl. May heating oil and May unleaded gas settled 2.7 cents and less than a cent lower at $1.5181/gallon and $1.6507/gallon, respectively.

“I think what we had Friday was short-covering with the forecast for cold weather. Over the weekend we got the cold weather, but I think people know the cold weather is going to come and go,” said Tom Saal of Commercial Brokerage Corp. in Miami. “So while Friday was short-covering, trading on Monday was some long liquidation — with probably a little more to come.

Funds and managed accounts may not be buying into any petroleum-led advance in natural gas prices just yet. Figures from Friday’s Commitments of Traders (COT) Report show that noncommercials have increased their net short holdings of natural gas futures (only) contracts. As of April 19 noncommercials held a net short position of 13,766 contracts, up from a net short position of 5,132 a week earlier.

However, with the expiration of May natural gas on Wednesday, some market experts said the COT report could be misunderstood. Despite the net short increase by the noncommercials, Saal said it is hard to “discern their behavior during an expiration cycle because most of the traders are commercial hedgers that are getting out of their positions for the end of the month. Of course, funds usually roll their position into the next month.

“I think most of the price action last week — at least on Friday – -was short-covering by hedgers,” Saal added. He noted that price action last week was “kind of sideways” until the big rally on Friday. “Now we had a sell-off Monday,” he said.

The broker said he believes the May contract will likely test lower numbers before it expires. “We could test $7.08 and $7.05 on the downside,” Saal said. “If the market chooses to go higher, we could see $7.25.”

Longer term, traders suggest that summer power demand is a wild card that may push prices higher. “From a longer term vantage point, we continue to see enough uncertainty within upcoming summer power requirements to suggest independent price strength as the market moves out of the shoulder period in another month or so,” says Jim Ritterbusch of Ritterbusch and Associates. He said he favors purchases of summer contracts in the $6.80 to $6.90 area.

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