Maintaining Monday’s momentum, August natural gas on Tuesday climbed to a high of $5.850 before retracing most of its steps in the afternoon. Despite the morning run-up, the prompt month settled at $5.633, up only 2.5 cents from Monday’s close.
After gapping nearly 15 cents higher in the overnight Access trading session to open Tuesday at $5.750, the August contract recorded its $5.850 high in the first 10 minutes of the regular session. However, futures sloped lower into the afternoon to record the day’s low of $5.550 before settling.
“We’ve had a nice long profitable run for the bears on the downside, so there is nothing unusual about getting a few days of short-covering,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “I don’t really think we hit any resistance up there at $5.85, I think we just ran out of buying. The market has been very skittish lately. We’ve had these light to moderate volumes pushing it in one direction, and then it disappears and the market goes dead. We may get a little more of a rally off this yet.”
Looking at the tropics, Kennedy said there is a system over the Bahamas that could develop. “It is not a slam dunk to develop by any stretch of the imagination, but it is going to go over South Florida and get into the Gulf of Mexico,” he said. “It doesn’t look that impressive yet, but we will see what happens. Storm potential, tied in with incoming hot weather, could keep the sellers a little nervous here for a day or two.”
Looking at the overall futures market, Kennedy said he would stay away from the winter months right now. “I still think the winter is overvalued,” the broker said. “If I didn’t have anything on for the summer, I would use any sell-off to get something on for the summer.”
Monday’s 8.5-cent gain in August futures to $5.608 was seen largely due to expected hot weather, but top analysts suggest it may take more than that to sustain higher prices. “If this temperature support is to be sustained, it will need to be accompanied by some threats of tropical storm activity and such a development remains elusive for now,” said Jim Ritterbusch of Ritterbusch and Associates..
Elusive or not, AccuWeather is following a tropical wave at 46W and 15N or about 900 miles east of Barbados. Currently it is showing clusters of thunderstorms and a slight rotary motion in the thunderstorm pattern. They point out that this is often the beginning signs of a possible low level or upper level feature forming. What is different now is that shear conditions have lessened and surface pressures are lower and this is more favorable for tropical conditions to develop.
“If surface pressure continues to lower and the shear continues to relax over the eastern Caribbean and near the Lesser Antilles, this wave could try to organize in a few days. This wave will move into the Lesser Antilles Wednesday night and Thursday,” the forecaster said.
In its most recent six-to-10-day forecast, the National Weather Service (NWS) indicated above normal temperatures enveloping a large section of the country. According to the forecast, the only areas of the Lower 48 that are expected to exhibit normal temperatures are the Southeast over through southern and western Texas, and the Washington and Oregon coasts.
Whether or not the recent rally can be maintained is in doubt. “Price weakness is possible with eventual price slippage possible to the $5.00-5.25 zone,” said Ritterbusch. He suggested that short of a major weather development, the market will encounter staunch resistance on any new rallies at about the $6.00 area. “Further weakness in the summer/winter portion of the spread curve is also expected,” he said.
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