Staying strong at the end of a meteoric week, July natural gas futures kept pushing higher Friday, reaching a high of $7.73 before settling at $7.69, up 7.7 cents on the day but a whopping 75.8 cents higher than last week’s settle.
July crude was the star performer once again. On fears of tight supply this summer, crude climbed $1.89 on Friday to settle at $58.47/bbl. The $58.60/bbl high on the day set a new all-time record for crude futures, topping the previous intraday high of $58.28/bbl set on April 4. July heating oil finished up 2.63 cents at $1.6518/gallon.
“Obviously the background noise is crude, although it shouldn’t be,” noted Ed Kennedy of Commercial Brokerage Corp. in Miami. “We shouldn’t be trading with crude, yet we are.”
Kennedy said he can’t explain the sharp increase in natural gas futures for the week. “Fundamentally, I am at a loss to find a reason for these numbers, but we are here and it appears that we have a little more upside,” the broker said. “The next level is $7.90, followed by $8.00 and $8.04. I’d sell it in a heartbeat right now, but I need a reason to sell it. I’m not getting any sell signals here yet so I am just going to bide my time.”
Kennedy said trading on Friday was “pretty lackluster,” with mainly locals in action and some day-trading funds doing some buying. “The natural gas market is acting irrationally, but you just have to go with it for the time being,” he said.
The broker added that the theory about heat causing the spike is false, or should be false because “it is not that hot” yet. “Up the Mississippi through Illinois and Indiana is the big demand area and it is not hot there,” he said. “You don’t even start to worry about it until it gets above 96 degrees. What happens then is they bring back the older gas-fired plants, which are less efficient, and you get a big jump in gas demand. We are not there yet because we are only talking temperatures in the 80s. So it’s not the heat.”
Advest Inc.’s Jay Levine believes this upside still has something left in the tank. “I sense the markets are borderline panic, yet I still feel there’s another, or better, short squeeze to come,” he said. “You know the way these markets work. The market appears to be topping, young and old short-selling enters the market and before you know it — with the market creeping ever higher — BAM! A massive squeeze the likes of which I don’t think we’ve yet seen.”
Despite his prediction, Levine said he understands the need for a correction along the way, even if overall he is still seeing higher prices. “Both July natgas and July crude…are sitting in my initial resistance areas, and while my next (resistance) levels in each are a fair distance away, if I were an aggressive trader, I’d consider selling both [Friday] — if only for a trade,” he said.
“Of course top picking can be hazardous, and like running with the bulls in Pamplona, it’s your call whether that suits you or not. Some might prefer waiting for higher numbers or any sign of a top before attempting sells, and there’ll be those who simply prefer waiting for a pullback (at this point what should be a healthy one) before leaping on the bull bandwagon — and eventual technical price targets — mine — $8.60 first and $9.40+ second (at that point not impossible and on the same day).”
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