It has been argued the emergence of storage facilities in thenatural gas industry has robbed cash prices of some of theirvolatility during summers and winters and replaced it duringshoulder months. Perhaps a similar affect has happened this pastyear because of mother nature. The El Ni¤o winter, which helpedkeep volatility in check this weekend, may very well be behind theextremely high volatility seen at the New York Mercantile Exchangethis past week.
After nearly posting a 10 cent gain Tuesday, the spot Maycontract shocked many sources contacted by GPI by dropping 16.3cents to settle Wednesday at $2.398. “Everyone saw 100,000estimated volume [Tuesday] and thought we’d push $2.72 today.Pretty much no one expected this,” a source said.
An analyst blamed the price drop on severe selling ahead of theexpiration of the May contract. “Remember, margins double the lastthree days of trading for an expiring contract, which is thisFriday. Plus, traders generally like to get out of positions beforethe weekend, and today appeared to be the day all that happened.Speculators were still net long the May contract, especially afterthe heavy buying on Tuesday,” he surmised.
Despite the heavy drop off, another analyst said bullish traderscan hang their hats on several potential constructive factors.First, the contract failed to take out major support at $2.33.Second, he believes spot demand is currently about as low as itwill be for the rest of the month. Indeed, the CNG Energy Indexpredicts energy usage across the United States will be between 5%and 26% below normal this Thursday through Saturday, with energydemand gradually increasing to 11% above normal by next Tuesday.”That very well may add a little kick to the cash market, andtherefore to futures prices as the contract converges with spotprices on expiration day (also on Tuesday),” he said.
However, if May does manage to fall and settle below support at$2.33, look for secondary major support at $2.20, a technicianadvised.
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