“Irrational exuberance” is the way at least one energy trader classified Monday’s explosion higher in natural gas futures values. In spite of bearish fundamentals, the July contract jumped 41.4 cents higher to close at $4.249 as some market experts pointed fingers at fresh speculative money flooding into commodities.

When looking for reasons for the strength exhibited in most commodities on Monday, Rafferty Technical Research broker Steve Blair said, “You don’t have to look very hard to figure out what is going on. It is happening in all the markets. I’ve said it before and I’ll say it again: over the last three to four weeks we’ve seen the rise in spec money coming back into commodities. Yogi Berra so aptly put it, ‘This is like deja vu all over again.’ Equities are rebounding and I think some of these funds made some money recently or received injections of capital and are starting to pump that money back into commodities.”

Looking at the fundamentals in the energy sector or even the broader commodity sector, there is no other way to explain the bullishness, Blair said. “The fundamentals, especially in natural gas, don’t even remotely explain this move. July heating oil futures at one point Monday were up something like 9 cents. That doesn’t even come close to making sense. Inventories are fine and I don’t know of anyone in this country using heating oil at this time of year.”

Natural gas fundamentals are similarly bearish. “Someone said we are 17% into the storage injection season and there are already some storage facilities that are 70% full,” Blair said. “With current inventory levels and the current pace of injections, this market’s strength makes no sense. I would like for someone to identify the current bullish factors, because I don’t think they can. Everyone was calling today and asking what was going on. Clients are wondering if they missed something, but there isn’t anything there to be missed.”

Blair said the market seemed to hesitate on Monday around the $4.100 to $4.120 area, which he said housed one of his resistance levels. Now that it has gotten through there, the broker said his next resistance number is up at $4.380.

“Moving forward, if you really have a propensity to be short, my only recommendation to people I talk to is to put it on a short leash, because you could get burned,” Blair added.

Going into Monday’s trade, some market watchers said that for the moment traders seem to be focusing on natural gas prices relative to crude oil rather than the natural gas market’s own soft fundamentals.

“If the fundamentals are not strong (they are not), then the best source of buying could come from the ratio between crude oil and natural gas,” Peter Beutel, president of Cameron Hanover, said Monday morning. According to his calculations, the ratio, now at 17.29:1, is as high as it has been as long as he has been watching it. “Crude oil prices are not showing terribly good signs of selling off, although we believe they will, but it may be stronger [natural] gas prices that will bring the ratio back into line. The average ratio of crude to gas has been 8.52:1 since the start of 2002. Either gas has to rally or crude has to fall; in the event, we may see both occur. We expect to see technical buying come into the gas market over the next few weeks,” he said.

While gas futures obviously rallied on Monday, so too did crude futures values. July crude gained $2.27 to close at $68.58/bbl.

On Friday Baker Hughes reported that the number of rigs drilling for natural gas in the U.S. continued to decline. For the week ended May 29, the tally stood at 703, down eight from the week earlier and lower by a whopping 776 from a year ago.

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