Front-month natural gas futures values reached almost a three-month low Monday as traders seemed resigned to the fact that the winter heating season — and its ability to draw down storage — are quickly running out of time. April futures recorded a low of $4.670 just after 12:30 p.m. EST before closing out the day’s session at $4.680, down 13.3 cents from Friday’s finish. The last time a front-month contract traded lower was back on Dec. 7, 2009, when the January 2010 contract notched a low of $4.644.

“From a calendar perspective, spring is about to be sprung,” said a New York broker. “Even though the Northeast is still digging out from yet another blizzard, there are only 19 days left until the official start to spring, so traders just aren’t that sure there is enough cold left to really put the storage situation into trouble. We still have a lot of gas. This is why I think we finally broke out of that $5 to $6 trading range last week. I think this is also why we continue to trickle lower despite some adverse weather and temperatures.”

Directional traders — those who attempt to profit from determining the direction of the market and are less concerned with offsetting risk of a physical position — overwhelmingly have taken to the short side of the natural gas futures market. The Commodity Futures Trading Commission in its Feb. 23 Commitments of Traders Report showed that managed money surged to the short side of the trading ledger. At IntercontinentalExchange short holdings of futures and options (2,500 MMBtu) increased by 14,380 to 46,014 contracts and long positions increased by 1,293 to 559,899. At the New York Mercantile Exchange short positions (10,000 MMBtu) rose 20,643 to 182,646 and long positions fell by 5,116 to 131,618. After adjusting for contract size, total short positions at both exchanges increased by 24,238 and long positions decreased by 4,793.

Changes in open interest of that magnitude are hard to ignore. For the five trading days ended Feb. 23 April futures fell 47.3 cents to $4.809.

In spite of the tectonic shift to the short side of the market by funds and managed accounts, bulls may still have some life in them as prices hold recent lows. A New York floor trader said he was “surprised” at the market’s action Friday. “It looked like when the market traded down to $4.739 prior to the open that people were going to completely discount the storm and the black box algorithmic traders were going to continue to sell the market. Instead, what happened was that some of the black box traders who had been short the market prior to the expiration of the March contract decided to cover some positions.” He also noted some light selling by producer hedgers.

Longer term, traders suggest that with the shoulder months approaching the market will trade within relatively narrow parameters. “We still feel that prices have dropped to a level where supply and offtake are relatively balanced and some type of an event may be required in order to force a price move of more than 10% in either direction this month,” said Jim Ritterbusch of Ritterbusch and Associates.

He added that the “weather is not likely to provide such an event unless temperature deviations swing more than 10% beyond the norm over an extended time period of more than a couple of weeks. Otherwise, this market is likely to settle into a new and lower trading range that we would define as about $4.70 to $5.25 per nearby futures.”

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