What might seem to be just another down day Tuesday may prove to be more pivotal than some traders imagine. Prices made an early stab to as low as $3.448 in electronic Globex trading slicing through widely heralded technical support at $3.500. Market technicians re-calibrated their estimate of what now constitutes technical support 12 cents lower, and if that is taken out, traders may very well be looking at natural gas futures with a $2 handle.
May futures settled at $3.511, down only 2.9 cents on the day, and June dropped 3.2 cents to $3.635. The expiring May crude oil contract rose 63 cents to settle at $46.51/bbl.
Following the day’s weak performance, short-term traders were not optimistic that prices were about to advance any time soon. “We saw some trading in the May-July spread; traders were selling the May and buying the July, but no one is expecting this [market] to rally,” said a New York floor trader.
“Our technicians are looking at $3.380 technical support,” said a New York broker. He added that if that were taken out, then a probe toward $3 was likely. He noted that Wednesday’s report on crude oil inventories may have some impact on the natural gas market.
“We are looking for a build of 2.6 million barrels Wednesday, but if it comes in at a four to five million barrel build, “the whole complex [including natural gas] will be weaker,” he said.
A Bloomberg survey showed that traders were looking for draw in distillates of 1 million barrels. Distillates include heating oil, which can be substituted for natural gas. “You want to look at heating oil. If that comes in as a build you will see some pressure on natural gas,” the broker said.
Top analysts saw the price break below $3.500 coming but are circumspect as to whether prices can advance from there. “With so few fundamental reason for prices to build on [earlier] failures to break $3.500, prices have just not been able to put any air between themselves and that critical support level,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. He added that Tuesday morning’s experience was a case in point “even if it happens as the result of a stop-hunting expedition. The real question, looking ahead, is whether prices will be able to build on any potential break below $3.500.”
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