After putting in a high of $6.232 in Tuesday morning trade, February natural gas futures slunk lower for the remainder of the regular session, recording a low of $5.865 before settling at $5.983, down 8.9 cents from Monday’s finish. Despite the decline, some market experts said the lows could already be in and that bulls could finally be coming to power with the support of colder weather and larger gas storage withdrawals.
Commenting on the recent gains in natural gas futures values, Hencorp Becstone Futures LC broker Tom Saal, said the funds are a large reason for the turnaround. “It appears the funds are buying back part of their massive short position. The market pressed lower for a period of time, but then we got some cold weather and some pretty good storage withdrawals, so we are seeing some short-covering. The funds being so short are starting to buy back some of those positions and I think that is buoying the market.”
Looking back at the $5.210 low for the move from Dec. 22, Saal said that price level might be safe for now. “I think we might have seen the lows for the time being,” he said. “If we can get back above $6 for a while, the bulls might gain a little bit of momentum. The best buyers in the market are the funds…and they’re pretty short. They’ve been massively short on this big sell-off from late last year, so they have profits in their positions. If they come in buying en masse, we could see some significant upside. Now the backdrop of the economy still hangs a bearish note over the market, but the funds don’t always adhere to fundamentals.”
Looking at the upside, Saal said the first big resistance line is at $6.310. “To get a lot higher than that level is going to take some significant work, because there is some pretty heavy resistance from $6.310 to about $6.750,” he said.
Cold temperatures continue to be anticipated for major energy markets. In its Tuesday morning six- to 10-day forecast WSI Corp. of Andover, MA, said, “The coldest anomalies are expected to settle into the Great Lake states and northeastern U.S., where anomalies between seven and 12 degrees below normal are anticipated.” Westerners may expect some reprieve as warmer-than-normal readings are forecast over most of the western third of the country.
A New York floor trader observed that once the market approached the $5.20 area back in December when the January contract was prompt month, “it was the sentiment of a lot of people that the lows for the next few months were in.
“A lot of people are covering shorts, and we have seen a few funds that are buying and going long, and that is definitely scaring some of the small shorts and directing people to get on the bull train. We saw some good utility buying in the April-October 2009 strip [on Monday] and since natural gas is a little more costly and volatile contract, you will see people getting out [covering] on just a 10-cent move.”
Longer term, observers sense that the trend in petroleum and natural gas prices may have changed. “Most market observers have believed for a while that prices had fallen too far, too fast. Nonetheless, the market has been able, until recently, to ignore a number of traditionally bullish factors,” said Peter Beutel, president of Cameron Hanover. “It now seems that prices are trying to get back to more moderate levels before deciding where they might ultimately belong. In other words, prices are due to rally.”
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