April natural gas futures rose Monday as end-users took advantage of sub-$4 pricing and discounted forecasts calling for milder if not unseasonably warm temperatures. At the close April had gained 11.8 cents to $3.927 and May rose 9.7 cents to $3.984. April crude oil added $1.02 to $105.44/bbl.

Traders reported end-user buying as low prices proved too attractive to pass up. “It seems like every time the market breaks 20 cents under $4 these guys [clients] wake up,” said a California broker. “They add contracts when the market is down, and they don’t when it is up.”

He noted that “on the first break when the March contract expired we did some [outright] call buying, no spreads, and we haven’t sold any puts down at these levels. There has been a little bit of strip buying for calendar 2012 last week, and my end-user clients are just basically buying breaks.”

It was hard to make a weather case for the day’s advance. MDAEarthSat in its six- to 10-day forecast reported that “the pattern will be turning warmer faster by the back half of this period, which has resulted in a warming of the forecast today [Monday].As the ridge over Alaska breaks down, there will be little support for any sustainable cold air downstream over the rest of North America. Given this ridge breakdown as well as little to no blocking elsewhere, the pattern should become rather warm dominated.”

The forecaster went on to say “The European models are favored in this case, given their better handling of warm patterns. By late period the question is not whether it will warm up, but rather by how much, with widespread MA [much above normal temperatures] to SA [significantly above normal temperatures] likely.”

In spite of the day’s gains government data shows directional traders overwhelmingly favored not only the short side of the market, but also the liquidation of long holdings. The Commodity Futures Trading Commission said in its Commitments of Traders Report that as of March 1 managed money holdings of long futures and options (2,500 MMBtu per contract) at the IntercontinentalExchange fell by 79,485 to 298,297 and short holdings rose by 25,061 to 60,874. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) rose by 4,315 to 136,750 and short positions grew by 17,803 to 311,855. When adjusted for contract size long futures and options at both exchanges fell by 15,646 and short positions increased by 24,068. For the five trading days ended March 1, April futures actually rose 0.6 cent to $3.873.

Longer-term analysts see forced producer selling and lack of end-user demand as pressuring prices. “Unlike the crude oil market, which seems to be ignoring the fundamentals, the natural gas market continues to trade off the perception that the fundamentals are very negative. At this time the fundamentals are negative, but it is our feeling that current price levels have already discounted a lot of bearish news,” said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.

DeVooght also feels that “the gas market continues to be pressured by the producer (or his bank), which feels he needs to sell the rallies because he has no pricing power. Exaggerating the price weakness is the lack of urgency by end-users to do any forward purchases. Until something changes current perceptions, natural gas rallies will be fleeting. What eventually will be the catalyst to create buyer urgency is anyone’s guess. We feel we are getting closer but not there yet,” he said in a weekend note to clients.

DeVooght sees the market bound by a trading range. “There is little doubt that at this time there is more than adequate production to meet current demand. The big question yet to be answered is: ‘When will current prices result in lower production and higher demand?’ It is going to take time. On a trading basis it has been, and continues to be, our feeling that the gas market is establishing a base and will most likely continue to trade in the high $3 to high $4 range in the weeks and months to come. We will continue to sell put premiums when we approach the $4 level and sell calls and contracts when we approach the $5 level.”

Production being greater than demand may have tempered the number of rigs targeting natural gas. The March 4 report by Baker Hughes showed rigs drilling for gas down by seven for the week to 899, lower than year-ago levels when the gas rig count stood at 926. The number of horizontal rigs, those typically used in shale drilling, also declined by 11 to 970, but they stand well above year-ago levels of 695 rigs. Overall, drilling in the U.S. stands at healthy levels. The total rig count increased by eight to 1,707, well ahead of a year ago when the rig count stood at 1,396.

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