A rash of downed nuclear plants tied with early strength in crude futures sent natural gas futures higher Monday morning, but the run-up proved to be short-lived. After hitting a high of $7.630 in morning trade, May natural gas futures, in unison with crude, dropped off later in the afternoon, settling at $7.244, up 3.4 cents on the day. Even more surprising was that the prompt month’s settle was only 2.4 cents higher than the contract’s $7.22 low for the day.

May crude definitely played a role in the strength seen in natural gas futures. At one point on Monday, prompt-month crude was trading at $67.90/bbl, a $1.27 premium over the contract’s Friday settle. However, crude broke down in the afternoon to close at $66.74, up 11 cents on the day.

“Natural gas futures really seemed to be following the track of crude futures Monday,” a Washington, DC-based broker said. “While Monday’s natgas run-up was pretty unconvincing due to its quick collapse, the prompt month continues to stay above the $7.12 double bottom. Despite Friday’s sell-off and even Monday’s weakness at the end, we haven’t been able to breach that level. I would remain bullish in general. I see this as just a gradual advance and building a base.”

The broker noted that he has not seen a huge amount of buying coming in with a lot of people looking to take advantage, but he also noted that it seems the sellers are not out there attempting to force the issue. As for the recent $6.50-7.50 trading range, the broker said he thinks the market will break out of it to the upside shortly.

“While we continue to butt our heads against that $7.50 level, you also have to remember that we continue to make higher lows every time,” he said. “That is what they call an ascending triangle in technical analysis. More times than not, it is resolved to the upside.”

He pointed out that the spread between crude futures and natural gas futures remains of interest. “Crude is only $4 off of its all-time high but natural gas has sold off 50% from its all-time high following Hurricane Katrina. That spread has to come back in some regard. I don’t know if the funds are looking to do that or not. At the moment, things are very lackadaisical in natural gas, but I still think we are in the pre-stages of a rally.”

Also of interest was the level of activity in the nuclear power sector. “The natural gas market has reversed abruptly to the upside [Monday], given a strong psychological push by the shutdown of four nuclear reactors, against only one restart in Monday’s NRC report,” said Tim Evans, an analyst with IFR Energy Services, in his midday report. “While this will certainly make room for more gas-fired generation, it still isn’t clear [if] this will fully compensate for warmer-than-normal temperatures.”

In the short run, downed nuclear plants may boost natural gas demand. When nuclear facilities are taken offline, natural gas is often used by generating units to make up the difference. Over the weekend, three nuclear plants were taken down unexpectedly. Dominion Resources’ 882 MW Millstone 2 in Connecticut, the FirstEnergy 831 MW Beaver Valley 2 in Pennsylvania and Arizona Public Service’s 1,247 MW Palo Verde 3 west of Phoenix, AZ, all suffered operating problems and had to be taken down.

The winter heating season is officially over, and National Weather Service (NWS) forecasts confirm that heating requirements will not be enough to wet the bulls’ whistles. For the week ending April 8, the NWS says that New York, New Jersey, and Pennsylvania will see 130 heating degree days (HDD), or 11 below normal, and the industrial Midwest states of Ohio, Indiana, Michigan, Illinois and Wisconsin will have to endure only 125 HDD, or 20 below normal. Cooling degree days (CDD), however, might be another issue. Populous “hot spots” are expected to see more cooling load than normal. Florida, for example, is forecast to see 53 CDD, or 15 above normal, and Texas is to see 46 CDD, or 26 greater than normal, according to NWS figures.

In spite of continuing mild weather and early hints of cooling load, traders see little in the way of weather driven price impacts. “We would reiterate that the bearish news regarding a record level of storage is out and that significant fresh news of a fundamental nature will prove extremely limited going forward into the shoulder period due to the diminishing impact of the weather factor,” said Jim Ritterbusch of Ritterbusch and Associates. “We have shifted to a neutral trading stance in anticipation of further price consolidation within the approximate range of the past month,” he noted.

Oil prices are something of a wild card. Often when fundamental news on natural gas is slim, traders will take guidance from the crude oil activity in the adjacent ring. The current thinking on oil prices is that they have a hefty “fear” premium attached to them, but if they fall in the second quarter, they won’t fall too far.

“The only thing that matters in oil is how much of a fear premium does one believe is justifiable because based on current supplies versus demand, oil is at least $10 to $15 too high on a historical basis,” said Peter Grandich, editor of Grandich Publications.

On the other hand, Matthew Parry, an economist at Moody’s Economy.com, predicts that prices may fall by around $5 in the second quarter because demand always slips during that period. Still, he also said he thinks OPEC will cut crude oil production at its June meeting, “which will slow any price decline.”

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