Neglecting fundamentals and running with technicals alone, the Nymex June natural gas futures contract ceased its flirting with the psychological $6 mark on Monday by barreling through it — setting a new June high of $6.25. The contract backed off slightly in late afternoon trading to close at $6.231, up a whopping 36.9 cents on the day and 12.1 cents over the previous June high of $6.11.

“Local traders are jumping ahead of funds,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “You’ve got fund-buying in crude, you’ve got fund-buying in natural gas. There is no selling out there. We are going to have to get to a level to find some selling and I have got a feeling it is going to be between $6.50-6.65. You close above $6.11, which is the previous high, you’re going to get some more buying coming in here.

“We can bring up the fundamentals, there is no shortage of gas. Even though we have a lot more gas in storage than last year at this time, it really doesn’t matter,” he said. “For the near term, the technicals are going to hold sway.”

He recommended that [buyers] need to protect their summer months by purchasing options. “At least you’re defining what your risk is and I would take catastrophic protection,” Kennedy added. “In other words, buying $6.25, $6.30 or $6.40 call options — or something like that — for June and July.”

ESAI Senior Analyst Scott De Pasquale said he believes one of the reasons the futures market continues upward — even in the face of bearish fundamentals — is because financial players or non-commercials, who used to be about 12% of the futures market, now account for 30% of it. These are the financial players who are looking to arbitrage. There are fewer players with a physical gas interest.

This means technicals, not fundamental factors, are now in control, De Pasquale said, saying it seems that financial traders all tend to trade the same way. He added that right now there are just a couple of traders that hold “huge” short positions; while all the rest are long; so that puts power in just a few hands. It just depends on how long the financial players can hold up the market in the face of the fundamentals, he said.

There is a possibility the market could be building to a “bull trap,” De Pasquale said, noting that LNG imports are increasing rapidly. And while there has been a production decline despite increased capital spending, it’s possible there is simply a longer lag time before the higher prices result in increased production. Instead of a six to nine month lag, it may take a year or more to sustain increased production. So it’s possible that increased LNG and a delayed production reaction could make a dramatic difference in the market, he said.

Tim Evans of IFR Energy Services, said “After a check on technical support, June natural gas surged to the upside on Monday in an apparent conclusion that recent lackluster storage data wasn’t that much of a drag on prices in light of the supportive weather outlook extending in front of the market over several different time frames,” Evans said. “June natural gas held above the $5.825 low from Thursday and jetted through both the $6.01 peak from last week as well as June’s $6.11 high from April 12.”

Evans said he sees the next possible resistance in the $6.25 area, but with potential for the market to “sail beyond” that point. Like Kennedy, Evans also said he sees selling at $6.50-6.65 level, but added that even the psychological resistance at the $7.00 mark could eventually come into play.

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