Natural gas futures traders continued their recent stretch of back-and-forth trading as the May contract shrugged off Friday’s nickel advance and dropped nearly a dime on Monday. The prompt-month contract reached a low of $3.902 before closing out the regular session at $3.944, down 9.5 cents from Friday’s finish.
For now, a number of market watchers still see futures moving in a sideways motion as the market keeps trading on both sides of $4.
“Last week’s temperatures will translate into 90 Bcf or so in storage injections, still bearish compared with a 33 Bcf five-year average, while updated weather forecasts feature mostly normal temperatures, which we see translating into near-average storage injections for the weeks ending April 23 and April 30,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “With these prospects, the natural gas market continues to find enough buying interest to hold [the] $4 area, although we think it lacks the more supportive fundamentals it would take to support a sustained price recover[y]. Further sideways chop seems like the most likely prospect for natural gas futures in the near term.”
One trader Monday morning suggested that speculative clients should take a long position in the natural gas market. Mike DeVooght of DEVO Capital Management, a Colorado-based trading and risk management firm, declared, “there is a lot of bearish news built into the current prices. On a trading basis, we still see no compelling fundamental reason to cover our short positions. But as a trader we have been monitoring the market closely for a reason to get long the gas market.”
DeVooght noted that last year when the market traded under $3, “there were numerous substantial short-covering rallies.”
This time around, DeVooght said his company purchased September $4.50 calls at 38-45 cents for speculators, but hedgers were advised to hold current positions. “We will be monitoring the market closely…to see if there is any fallout from the Goldman news,” he said.
Financial markets Friday lurched lower on news that financial giant Goldman Sachs was charged with fraud by U.S. regulators for its role in the sale of collateralized debt obligations, which are blamed for contributing to the worst financial crisis since the Depression. The Dow Jones Industrial Average lost 105 points to 11,018 Friday. Traders in both equity and energy markets will be watching closely this week for any additional developments.
Funds and managed accounts concerned with only the directional dynamic of the natural gas market exited the long side of the market in droves and added to short positions recently, according to government data. For the week ended April 13, the Commodity Futures Trading Commission in its Commitments of Traders Report indicated that managed money at IntercontinentalExchange offset long positions and short holdings as well. Long futures and options (2,500 MMBtu) decreased by 31,283 contracts and shorts fell by 171 contracts. At the New York Mercantile Exchange long holdings fell by 1,801 contracts (10,000 MMBtu) and short futures and options rose by 3,284 contracts. When adjusted for contract size long positions fell by 9,622 and shorts increased by 3,241. For the five trading days ended April 13 May futures rose 6.4 cents to $4.160.
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