After hitting its head on a $7.85 ceiling Monday, May natural gas futures used the afternoon to probe for support. The prompt month ended the day down 15.5 cents at $7.594, just a few cents shy of Monday’s $7.56 low.

With the fresh hurricane forecast still circulating and crude and heating oil futures looking as wild as ever, natural gas futures found no lack of peripheral news. After topping out at $58.20/bbl and $1.6830/gallon, May crude and heating oil ended up settling at $57.01/bbl and $1.6422/gallon, losses of 26 cents and 2.16 cents, respectively.

“Purely technically speaking, we did have a key reversal day, with a newer high and a settle below the two previous closes. So that could set us up for a little bit of weakness,” said a Washington, DC-based broker. “However, I really don’t think it will test down much more than trendline support at $7.20. In the future, that number is obviously going to rise. Over the next couple of days you’re probably talking in the $7.40 area as likely support, which would be where that trendline would extend out to. As of right now, this doesn’t seem to be anything more than corrective at the moment.”

The broker said it will be interesting to see if buying comes in Tuesday on the little bit of discount the market saw Monday. “I wouldn’t be surprised at all to see that happen,” he noted. “Overall, this market seems to not be at all psychological. There doesn’t seem to be any of the craze or hysteria that is over in the crude market.”

The broker also pointed out that he doesn’t believe the funds are to blame. “The news about the funds starting to establish length here I think is significant,” he said. “For the people who keep talking about the idea that the market is going to get crushed up here, my question would be by whom?”

The Commodity Futures Trading Commission’s most recent Commitments of Traders (COT) report revealed that noncommercial traders (funds) held 3,781 net long positions as of March 29. On March 22, noncommercials held only 35 net long positions and on March 15 they had 7,044 net short positions.

“The funds have gone from short, to flat, to establishing length,” he said. “That seems like a pretty obvious trading strategy. This does nothing to dissuade me from my belief that the larger funds are not as reactive as people think.”

The broker noted that there are numerous studies and reports to back up his claim on funds. “The Goldman [Sachs] article, the government report and the Nymex report are all speaking the same facts: that speculative interests are not the cause of these price run-ups. Demand is the cause of these run-ups,” he said. “All that said, I don’t think the funds will be the one to crush this thing to the downside. They will get in on a down move if the market does start to turn off, but they are not necessarily going to be the cause of it.”

Concerns over available supply on the crude side continue to put pressure on the natural gas complex as well. “OPEC will have less spare capacity later this year, when demand is expected to surge,” said Kevin Norrish, an analyst at Barclays Capital. He suggested that the market’s ability to respond to demand and supply shocks is going to be constrained for a long period.

The big question is when will the rocket-like advance end. In a Bloomberg report, Edward Meir, a commodity analyst at Man Financial Ltd. in Darien, Connecticut, said “the markets are undoubtedly caught in a buying frenzy, and a sign of a possible top could come when prices move sharply higher only to reverse and close lower for the day. One trigger that could set this scenario off is more negative global economic statistics.”

Weather bulls were pleased by last week’s hurricane forecast released by Colorado State University meteorologist William Gray. In the report, Gray called for an above-average hurricane season for the Atlantic Basin, which revised his December forecast for a slightly above-average hurricane season (see Daily GPI, April 4).

In the eyes of some, the price rise is wreaking havoc on the U.S. economy. “This is very destructive for the U.S. and is bad for the world,” said a Houston marketer. He added that the way it stands now there will be more reliance on foreign products because “we can’t make anything on $55 crude oil.”

The Houston marketer said that overall the financial markets were extremely stressed as well by natural gas prices upwards of $7.50. “High gas prices just create an expense often times with no outlet to be passed on to customers,” he suggested.

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