Even though the National Oceanic and Atmospheric Administration (NOAA) mostly reiterated what has been being said for months, the government agency’s updated 2006 Atlantic hurricane forecast for a “very active” year was enough to spark a short-covering rally in natural gas futures on Monday. As a result, June natural gas, which expires Friday, ended up closing back above $6 at $6.276, up 31.4 cents on the day.

Prompt-month natural gas was trading at $6.040 just prior to NOAA’s 11 a.m. EDT press conference on its new forecast. An hour later, June natural gas was trading at its $6.350 high for the day, which it revisited in the afternoon but failed to breach once again. NOAA is predicting 13 to 16 named storms, with eight to 10 becoming hurricanes, of which four to six could become major hurricanes of Category 3 strength or higher (see related story). Looking at NOAA’s February forecast, the number of storms predicted remained the same, but the agency was originally calling for seven-to-10 hurricanes and three-to-five major hurricanes (see Daily GPI, Feb. 6).

One broker said the rally came as a little bit of a surprise because NOAA didn’t really say anything new. NOAA, along with all of the private forecasters, have been saying the same thing over the past couple of months. They all expect the 2006 Atlantic storm season to be overly active, but not as active or as devastating as the one in 2005.

“A lot of people have been short and making a lot of money,” said a Washington, DC-based broker. “All of the sudden a bullish statement — even if it isn’t new — comes out from a source deemed to be reputable and you get a little bit of a short-covering rally from people looking to get their money out right now. Yes, it seems odd that the rally was on old news, especially on something as difficult to predict as storm activity, but the rally wasn’t that big. We really didn’t get outside of recent trading activity. I think the strength Monday was amplified by the fact that a lot of people had profit on the short side and they wanted to cover.”

While crude futures put in a strong day Monday, the broker said he didn’t see much, if any, following from natural gas. On its expiration day, June crude settled 70 cents higher at $69.23/bbl. “In the last half-hour of the session, June crude rocketed $1 higher on short-covering and people having to buy back their shorts at the end of the day ahead of the contract’s expiration,” the broker said.

As for the overall picture of the natural gas futures market, the broker said he did not believe the bears had turned over the keys to the car just yet. “I think this is still a corrective action in a bearish market until ‘something’ can turn it around,” he said. “I think that ‘something’ will be hot weather. Maybe a hurricane formation sparks the change, who’s to say. As of right now, we are still a fair amount away from crossing over into bullish territory.”

Prior to Monday’s session, adherents of Elliott Wave Methodology saw continued declines on tap for natural gas futures. The Elliott Wave method models market moves in five waves, three in the dominant direction (one, three and five) and two intermediate waves in the opposite direction (two and four). The thinking is that the market is carving out a five wave pattern downward and has not yet completed waves four and five.

“Our bearish wave count pegs the decline from the $8.280 pre-season rally peak (April 19) as a five-wave decline still in progress where the leg down from the $7.133 high is the wave three,” said Walter Zimmerman of United Energy. He suggested that even if last week’s $5.860 low finished the wave three down, any rally from here should only be the wave four bear market correction (higher) and that should be followed by the wave five down. “To look like more than a short-lived bear market correction any rally from here must break decisively above the $6.500 level. Otherwise we still see natgas as on track for a continued retreat to the $5.780-5.340 zone,” he said.

Top traders see not only natural gas prices slogging lower but also tugging petroleum with it. “One big factor that we think will ultimately pressure the complex as we move through the summer is the cheapness of natural gas vs. the (petroleum) complex,” said Mike DeVooght, president of DEVO Capital, a Colorado trading and consulting firm. He observed that natural gas would normally tend to rally as end-users switched to gas because it is a bargain.

“But this year, with storage being filled as fast as it is, there is going to be a lot of gas looking for a home. We think both the complex and gas will remain under pressure barring any major political issue. On a trade basis, we will maintain current positions.” He advises traders to roll a long June natural gas/short June crude oil spread position to July (10 contracts of crude oil vs. six contracts of natural gas). End-users should stand aside, and producers should continue to hold an earlier short hedge of 30% to 50% of winter production at $13.95.

As the June 1 start of the Atlantic hurricane season quickly approaches, one forecaster is warning the public to not buy into the hype of some of the projections. New York-based Weather 2000 said, “In recent weeks and months, several forecast and media entities have capitalized on this fear of ‘an active hurricane season’ with particular emphasis on the Northeast U.S. and New York City itself.”

The forecasting firm said that while numerous tropical storms impact the Northeast every decade (most recently Hermine in 2004, making landfall in New Bedford, MA), the “proclamation in general isn’t a very noteworthy one.” Weather 2000 also pointed out that several hurricanes have ‘impacted’ the New York Coast in the 20th century, but none greater than a Category 3 storm. “New York City is geographically shielded from almost all direct hurricane strikes, with only two documented hurricanes actually making landfall in present day New York City (within five boroughs) since the 17th century, and none since 1893,” Weather 2000 said.

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.