After starting the day at a session low of $5.780, the May natural gas futures contract on its farewell tour jumped to between $5.85-5.89 by mid-afternoon before attempting to test the $6 psychological mark at the session’s close. Reaching a high on the day of $5.970 with 100,449 contracts changing hands, the May contract expired at $5.935, up 6.1 cents on the day.
Poised to come in as the prompt month Thursday, the June natural gas futures contract did break the $6 mark Wednesday, reaching a high of $6.01, before settling at $5.966, down 0.4 of a cent on the day. Meanwhile, June crude futures reached a high of $38.18/bbl, before settling at $37.46, down 7 cents on the day.
“What was interesting here is that the whole market was sort of crazy today,” a Washington, DC-based trader said. “The liquids took off and went strong, and then crude gave it all back at the end of the day. At the same time, the natural decided to perk up in the last half hour of trading.
“We are inching closer to the $6.03 high,” he added. “The market hasn’t gone completely haywire, which is nice in terms of not getting us too overbought or oversold.” From a technical standpoint, the broker said he was having a hard time finding any weakness.
Tim Evans of IFR Energy Services, said, “While the natural gas market was buoyed to some modest degree by the strength of the petroleum complex, it was largely preoccupied with book squaring on the expiring May futures and the outlook for Thursday’s DOE storage report.”
Noting that the futures market was still unable to clear the $6.03 spot high from April 12, Evans said that even if June does surpass that test, the $6.11 June peak from the same day could also still cap the market.
“On the downside, the $5.853-5.87 lows of the past two sessions tie in with the failed resistance in the 5.86-5.89 zone as nearby support, with a break beneath that point suggesting a retest of the Monday’s breakout above $5.74,” Evans said. “April lows from $5.63 down through the $5.544 floor for the month are probably well enough established now to withstand at least an initial test. Overall, while the market does have a chance to extend its recent rally, we think it is more likely working to confirm a short-term top instead.
“Coupled with the lack of a compelling overall short-term weather picture, we think the market has room to consolidate here or even stage a downward correction to recent gains before beginning on the next upward leg of a longer-term advance,” Evans said. “Summer heat and hurricanes will eventually lift values further, but not without some bumps along the way in our estimation.”
Looking towards the Energy Information Administration’s (EIA) natural gas storage report to be released Thursday at its regular 10:30 a.m. (ET) time, Evans said he is still expecting a 60-80 Bcf build, which is about the same as the market consensus. He noted that his — as well as the industry’s — predictions have bearish implications relative to the 46 Bcf five-year average build as well as the 52 Bcf net injection from a year ago.
Regarding the EIA storage report, Nymex reported Wednesday that it has teamed with ICAP Energy, a leading inter-dealer broker, to launch an electronic market in options on oil and gas inventory statistics (see related story this issue). Realizing that the EIA’s inventory reports — released on Wednesday for oil and Thursday for natural gas — have a sizeable impact on their respective markets, Nymex and ICAP said they hope to help market participants “manage exposure” to the reports.
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