June natural gas futures rose Wednesday as traders noted significant short covering prompting higher prices, but should prices advance another 20 cents or more, aggressive selling will appear, they say. June natural gas rose 15.3 cents to $4.284 and July rose 16 cents to $4.385. June crude oil fell 72 cents to $75.65/bbl.
“I think the advance has some legs to it,” said a New York floor trader. He noted that there was some “good selling between $4.27 and $4.30” as some traders tried to keep a lid on prices. “If you look at a chart…if the market gets above $4.30 it looks like it might run a little bit. I suspect we will see that Thursday with the market trading above $4.30 and testing up to $4.45 over the next day or two. It should test $4.50 before it heads back down.”
He noted that there are a lot of shorts in the market, and “I think they have been covering,” the trader said. He added that he thought that if the market continues to rise it will prompt additional short covering up to about $4.50. “There are definitely traders waiting to sell if it gets to $4.50,” he said.
A Texas fund trader using mathematical algorithms to determine his buy and sell points sees the market capable of “knee-jerk reactions” outside of the $3.80 to $4.20 range, and he admitted that “they can be pretty big in the natural gas market, but big picture the market falls right back into that range again.”
He added that Wednesday’s advance was a nice move, “but when you see the large moves in other global markets, those traders are all playing in natural gas to some extent. I don’t know which way they are spreading, but with the large moves in those markets it is going to cause some portfolio adjustments [and affect natural gas],” he said.
Analysts focused on energy demand found the Wednesday morning Energy Information Administration figures on petroleum inventories as having little to no market impact. As of late the oil markets have been following developments in the international arena following the stock markets lower on concerns of foreign debt issues and whether the European Central Bank would be able to craft a suitable rescue package. Ample petroleum supplies also suggest lower prices, but Wednesday’s report didn’t give much insight to energy demand and couldn’t energize the bullish case.
An earlier news wire survey showed that for the week ended May 7 traders were expecting an increase of 1.7 million barrels of crude oil and an 850,000 bbl rise in gasoline supplies. Distillates were anticipated to have increased by 1.28 million barrels. The actual figures came in at a build in crude of 1.949 million barrels and a draw in gasoline of 2.814 million. Distillates rose by 1.396 million barrels. “The report was considered neutral for prices,” said Mike DeVooght, president of DEVO Capital Management.
Natural gas traders will get their own set of inventory figures Thursday morning. A Bloomberg survey of 17 analysts showed an estimated storage build of 102 Bcf for the week ending May 7, the median of the sample, and IAF Advisors is looking for an increase of 100 Bcf. Ritterbusch and Associates anticipates inventories rose by 86 Bcf. The five-year average for this time of year is 84 Bcf.
Wednesday’s advance may have caught the bears off guard even though for the most part prices continue to meander within a relatively narrow range. “As long as prices remain above support at $3.81, the possibility of a bottom being formed remains in place,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm.
He sees the prices as a temporary low, “but they do not represent a bottom in any traditional sense, at this stage. Prices need to break above resistance at $4.235 and then at $4.33-4.38 in order to turn this stability point into a major bottom. But as long as there is an important low at $3.81 holding, the bears have a major obstacle in their way [to move lower],” he said.
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