With all of the attention focused on crude futures on Monday as it made a run at $60/bbl, July natural gas traded within a range from $7.50 to $7.80 before settling at $7.67, down 2 cents on the day.
A day away from expiration, July crude got as high as $59.52/bbl on the day, setting a new record high. Crude ended up closing at $59.37/bbl, up 90 cents on the day. Fears of summer demand and the lack of refinery capacity continue to drive the market.
“July natural gas was up in the overnight session, sold off during the day, but ended up settling pretty much unchanged,” a Washington, DC-based broker said. “If you plot it out as a bell curve, it was a pretty standard distribution, so there was not a whole lot of external direction coming in and pushing it in one direction or the other.”
Commenting on the recent uptrend of the last few weeks, the broker said that the rate of ascent has left the market vulnerable to corrections of up to 50 cents while still maintaining a bull trend. “We are now getting more weather forecasts that are supportive to the bull case, so I would tend to think that the big question is what happens if crude futures hit $60/bbl and then craters off $5.00 and goes into a more significant sell-off. That would be the true test of strength of the natural gas bulls.”
The broker hypothesized that if crude hits $60 then retreats to “$57 or so” in the course of two days, natural gas futures would have a “decent chance” of staying relatively strong and not collapsing.
“The run up by natural gas futures the past couple of weeks has been greater than crude’s rise. It has been a greater percentage gainer,” he said. “Unless crude collapses completely, I think natural gas will try to get up through $8 to its high, which was set in April.” On April 4, July natural gas hit $8.04. “Support probably lies currently right around $7.40 to $7.45,” he added.
Funds and managed accounts represent a potential reservoir of further buying inasmuch as they are still holders of a significant number of short futures contracts. The Commodity Futures Trading Commission reported Friday that as of June 14, noncommercials held a net 31,753 (futures only) contracts short. This is only a minuscule decrease from the 32,957 contracts held short a week earlier. No doubt much of the 44.2 cent gain registered in the July contract since June 14 represents fund short covering, but there is likely more short covering still to come, analysts note.
“We had some of the fund short position covering last week; the question is how much is still left out there to cover if they are still in that mode, which I would imagine they would have to be since there were some 31,000 shorts according to the Commitment of Traders report,” the broker said. “That is significant fodder for a bullish fire to keep going as those guys get stopped out.”
Warm weather expected later in the week should help the weather bulls. According to AccuWeather, highs in the 90s were felt Monday from the northern Plains to the valleys of the central Rockies with temperatures in the 80s extending into the Midwest and Northwest. Over the next few days, the heat in the Plains will build eastward. By Tuesday, highs near 90 degrees can be expected in parts of the Northeast.
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