Rising and falling almost in unison with oil over the past few months, natural gas futures continued the trend Tuesday as the June contract notched a new high of $6.40, before settling at $6.386 up 20.2 cents on the day. The June oil futures contract reached a high of $40.15 on Tuesday, trading at a level that has not been seen since late 1990. The contract closed up $1.13 at $40.06 over supply fears.
The natural gas prompt month traded below $6.275 till just before 1 p.m. ET, when it started a climb that was sustained until settlement. The June contract on Tuesday eclipsed the $6.36 high set on May 4 by reaching the $6.40 mark six minutes before the session close.
“Funds were the best buyers early, followed by local traders later in the afternoon,” said Tom Saal of Miami-based Commercial Brokerage Corp. He noted that the next Fibonacci numbers are $6.65 on the upside and $6.045 on the low side. “You’ve got a wide range here where a lot can happen.”
Saal said he would stop short of calling $6 a new floor price, noting that the market could run up to $6.65 on Wednesday, but be brought down to $6 or less on Thursday by a bearish storage report.
“One thing that is happening right now is the volatility in the market is very, very low, which means the market is going to get larger. The question is, which way the market is going to move. We could see a lot higher prices or a sell-off.”
A Washington, DC-based trader said, “The rise today in natural was important as a breakout over the recent shelf of resistance. Demand seems almost impervious to price.”
The trader said demand has recovered nicely, noting that not long ago, it was thought that certain industrial demand from fertilizer and chemical companies was lost forever due to high prices. “However, with Asia opening up to foreign investment, there are now new [higher-priced] markets for these industries to target,” he said. “The impact on natural gas is an upswing in demand.”
Looking ahead, the trader noted that the effect of this high demand may not be fully realized until next winter, when the industry is forced to rely on storage reserves that may not be as plentiful as in prior years.
“Our ability to replace storage this summer is the big question, especially if the weather remains hot,” he said.
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