According to one natural gas futures trader, the June contract on Wednesday went off the board like “a sleeping lamb” as it gained one-tenth of a cent to expire at $3.538. The July contract, which now assumes front-month status, slipped five-tenths of a cent on the day to close at $3.638.

On its final day of trading, the June contract traded in a sleepy 12.2-cent range as neither bulls nor bears could gain any real traction. “We did a smattering of business here and there in natural gas but not a whole lot,” said a Washington, DC-based broker. “The rally earlier this month in the June contract up to $4.575 got us technically bullish, but it reversed back to bearish on the steep drop on May 21. Since then, we’ve really been drifting sideways. The market has no ‘mo’ whatsoever.”

Considering the storage report to be released Thursday morning for the week ended May 22, the broker said he is looking for a build of around 105 Bcf, which would be extremely bearish compared to both last year’s 87 Bcf build and the five-year average injection of 91 Bcf.

“Sure, an injection north of 100 Bcf would be bearish compared to historical figures, but just how much more bearish can things get,” he said. “Everyone is waiting to see when will the natural gas rig count reduction start to bite. Everyone kind of agrees it should start soon, but we keep getting these large storage injection reports, which isn’t giving the bulls anything to run with. Out of those who want to be bullish, who wants to go in and buy 100 contracts on the front when you know you are going to get slammed 15 cents on it? Why not just wait and see instead? All of that absence in buying leads to markets like we’ve had the last couple of days.”

Citi Futures Perspective analyst Tim Evans came in on the high side of industry expectations with a 115 Bcf build, while Stephen Smith of Stephen Smith Energy Associates said he has upped his storage build prediction from 107 Bcf to 109 Bcf. If a 109 Bcf injection is realized, Smith said, the surplus versus 10-year norms will increase by 21 Bcf from 911 Bcf to 932 Bcf, well more than double the surplus of 395 Bcf one year ago.

The analyst added that the surplus over the 10-year norms will likely continue to increase over the next few storage reports. Smith said because he believes that total heating and cooling degree days for the weeks ending May 29 and June 5 will average 19% below normal, he expects the surplus to grow by 16 Bcf and 12 Bcf, respectively, in the following two reports.

“We show the surplus peaking in early summer followed by a summer decline, driven, we believe, by a U.S. gas production capacity decline, which begins slowly but which ultimately more than offsets the anticipated increase in LNG [liquefied natural gas] imports,” he said.

Jim Ritterbusch of Ritterbusch and Associates believes the natural gas price risk to the downside is greater than the upside potential and expects “additional expansion in the supply surplus, particularly on a year-over-year comparison basis.” He is looking for a build of 107 Bcf to be revealed Thursday at 10:30 a.m. EDT.

Commenting on the Tuesday news that the settlement prices for West Texas Intermediate crude oil, natural gas, heating oil and RBOB gasoline futures contracts on the New York Mercantile Exchange will be drawn exclusively from the last few minutes of each day’s trade on CME’s Globex electronic trading platform (see Daily GPI, May 27), the Washington, DC-based broker said the move — which further discounts the importance of the New York trading floor — is just a “reflection of reality.”

Under the current system, the settlement price for all four commodities is formed using both floor and electronic trading during the last two minutes of a regular session. “No volume is being traded on the floor any more,” the broker said. “The only thing people are really using the floor for are strips and back months because you can actually find a human being who will come up with a price for you and give you a market. Options obviously still are widely traded on the floor because they are complex enough that they need a market-maker. However, I’m sure there will be electronic market-making in options coming sooner than we think.

“As a trader I always want the most robust markets. Do I want a settlement based on a fewer number of trades or a greater number of trades? I’ll always take the greater amount of trades.”

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