Traders looking for the expiring May natural gas futures contract to test psychological support at $3 were sorely disappointed Tuesday as it instead finished its run by gaining 6.8 cents over Monday’s close to terminate at $3.321. The June contract, which takes over Wednesday as the prompt month, added 7.8 cents to close at $3.440.
After the May contract recorded a $3.155 low and closed Monday’s regular session at $3.253, some traders were wondering whether a final push Tuesday might result in sub-$3 prices. It was not to be as the contract recorded a $3.230 low in morning trade Tuesday before running up to a high of $3.352 just prior to expiration.
“The May contract went off the board on Tuesday without too much fanfare and I think the June contract will likely continue the plodding journey lower in the immediate near term,” said a Washington, DC-based broker. “I think it is possible that we’ll dip below $3, but if we do, it will be a short visit. We are running out of downside here because well operators have done a very good job of stacking rigs. At some point or another that will take control and we’ll see this market recover. Even more so than in the liquids, I think the gas producers have done a much better job of trying to manage the supply and demand situation.”
Looking at the candlestick pattern on the daily natural gas chart, the broker said the last two days of trading are quite revealing. “On Monday we made a new low for the down move at $3.155, but wound up the session near the day’s high, so we basically rejected the low numbers,” he said. “On Tuesday, while the candle pattern was a little bit longer, we still had a much longer lower wick. In other words, another attempt at bringing the market down failed and we ended up moving a little bit higher. Because we are extremely oversold, there is a standing invitation for this market to move higher. I’m not turning into a raging bull, but I think we have to be careful in embracing the short side.”
The broker noted that markets move on news, expectations and beliefs, and he’s not sure things could be any more bearish. “With all of the bearish and depressing news already known, any kind of bullish or positive news coming into the market could bump price higher,” he said. “If some supportive news came in, we could certainly see a natural objective to the upside of $3.750. Down the road, we are all going to have to deal with the return of inflation. When that happens, gas and everything else will go nuts to the upside.”
Some traders say they are still maintaining a bearish outlook and see any price improvement as a selling opportunity.
“We will continue to suggest working the market strictly from the short side by employing expected price rallies of 6% or more as fresh selling opportunities. More specifically, we will look to use rallies in the June futures [contract] to the $3.55-3.65 zone as selling opportunities,” said Jim Ritterbusch of Ritterbusch and Associates.
Tom Saal and Ed Kennedy of Hencorp Becstone Futures in Miami were expecting just such a rally in the June contract. In a Tuesday morning memo to clients they said, “Look for a rally to test the resistance for June in the $3.455 area.” The June contract followed their advisory almost to the penny after recording a $3.330 low Tuesday morning. June futures inched higher through the day and rallied late to record a $3.442 high just prior to the close.
One broker said the global outbreak of swine flu, which has been impacting financial markets, is also taking its toll on commodities. “It looks like the problems with swine flu may set the economic recovery back and impact the demand for energy. It’s just one thing or the other,” said an Oklahoma City broker. “I don’t think the natural gas market is as closely tied to the equity markets as crude oil is, but every time the equity markets get beaten up, crude oil [and by extension natural gas] loses its support.”
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