Possibly a little perplexed from the recent back-and-forth swings in natural gas futures values, traders on Monday kept the May contract in a tight range between $4.174 and $4.313 before it closed out the regular session at $4.262, up half of a penny.

While noting that there is talk in the market that prices may be at, or near, a bottom, Citi Futures Perspective analyst Tim Evans warned that he’s not sure current fundamentals support any real rally.

“There may be a case for this [being a bottom] from a technical price perspective as the price does seem to have stabilized in the $4 area, but from our fundamental point of view there is little if any indication of actual market tightening,” he said. “Last week’s DOE [Department of Energy] storage report did feature a smaller than expected 73 Bcf net injection, but this was still bearish compared with the 33 Bcf five-year average for the date.”

Evans noted that this Thursday’s report for the week ending April 23 could feature a below-average build. His early estimate is for a 55 Bcf addition, which would be smaller than both last year’s 77 Bcf build and the five-year average injection of 67 Bcf. However, he says the weather outlook seems to point to near-average storage injections over the next few weeks.

“This neutral data may fit with the price stabilizing, but it stops short of the king of bullish conditions that would support a sustained price recovery,” Evans said. “Without some rebalancing of the background rate of supply, we think the upside will be highly dependent on the weather, which is not the most reliable basis for a rally.”

Some risk managers aren’t yet willing to reduce protection against further market declines, but they admit that last week’s storage report-driven improvement was a nice move for the bulls.

“The weekly gas storage number was seen as positive because of a smaller-than-anticipated build. On a trading basis, we still see no compelling fundamental reason to cover our short positions,” said Mike DeVooght, president of DEVO Capital Management, a Colorado-based trading and risk management firm. He concedes that as traders they “have been monitoring the market closely for a reason to get long the gas market. Even last year when the market traded under $3, there were numerous substantial short-covering rallies. For speculators, we purchased September $4.50 calls at 38-45 cents. Hedgers, we will hold current positions.”

DeVooght is not alone in his reluctance to cover short positions. Data from the Commodity Futures Trading Commission (CFTC) shows that on the New York Mercantile Exchange for the five trading days ended April 20 traders favored the sell side of the market. In its weekly Commitments of Traders Report the CFTC reported that funds and managed accounts reduced their holdings of long positions (futures and options) by 1,535 contracts to 156,060 and added to their short holdings by 9,700 to 249,145 contracts. For the five trading days ended April 20 May futures fell 18.5 cents to $3.975.

Whether air conditioning load will surface is unknown, but warmer temperatures are on tap for eastern and Midwest energy markets. Matt Rogers, president of Commodity Weather Group of Bethesda, MD, said, “There is general model agreement this morning [Monday] that a strong surge of warming (80s at least) will affect the Midwest and East later this week into the first days of May (days six to eight), but there is much larger disagreement today on what happens next.”

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