May natural gas futures rose Tuesday as traders saw the market trading in concert with other energy futures but noted that it was still confined to a trading range. At the close May natural gas was up 12.4 cents to $4.262 and June had gained 12.0 cents to $4.310. May crude oil partially recovered from Monday’s $2.54 drubbing and added $1.03 to $108.15/bbl.
“A few days ago everyone was saying sub-$4, that we were going to trade under $4 and maintain under $4. We’ve got plenty of natural gas around and it [supply] is not an issue,” remarked a New York floor trader. However, he noted that in the last couple of days natural gas had been “piggybacking” the oil market, “but it’s still in the same range, $3.75 to $4.40, so we are not seeing anything out of the ordinary.”
With that said, he added that it was the perception of the floor that “everyone is expecting this market to come off. You will probably see $4 before you see $4.40. The way the market has been going lately it is anybody’s call. Everybody was bearish last week and now that we are up in the $4.20s, we might see a little follow-through again. There’s nothing [fundamental] to talk about.”
When queried about the large short fund position, he said, “If it gets up there [$4.40], you might see some [buying] interest up there.”
Trading in natural gas futures continues to grow. The Chicago Mercantile Exchange reported that following Monday’s trading, open interest in Nymex natural gas futures climbed 4,482 contracts to a record 983,802, eclipsing the previous high of 982,208 set on March 1. An earlier bulletin posted Tuesday showed (incorrectly) total open interest at 993,196, up 13,876 contracts. Futures open interest has climbed sharply in April, rising nearly 85,000 contracts, but the gains have come on days when prices moved up and down, making it difficult to peg just which group of traders was driving the increase.
It would be folly to ascribe the growth in open interest to largely speculative traders as exchanges have been busy adding contracts farther out into the future. This allows trade and commercial accounts longer periods to place hedge transactions. “You can now trade up to 60 or 70 months, and I’ll bet traders are in large part filling in those back months,” said Tom Saal, vice president at Hencorp Futures in Miami.
“We’ll know on Friday when the Commodity Futures Trading Commission in its Commitments of Traders Report reveals the numbers for Tuesday. There could have been an increase in both speculative and trade activity,” he said.
Economic uncertainty for all markets grew Monday when bond rating agency Standard & Poor’s said the U.S. government might lose its “AAA” credit rating unless policymakers agree on a plan to cut budget deficits and the national debt.
Energy demand drew center stage Monday after Nymex crude, heating oil and gasoline posted stout losses following China’s increase in banks’ reserve requirements to cool inflation. Such a move may dampen energy demand, and in addition Saudi Arabia Oil Minister Ali al-Naimi said the oil market is “oversupplied.”
Traders, however, were generally pleased with the 8:30 a.m. EDT release Tuesday of March housing starts by the Commerce Department. Expectations were for a seasonally adjusted annual rate of 525,000 units, well ahead of February’s depressed 479,000 rate, but the actual figure came in at an upbeat 549,000. A word of caution, however, in that housing starts are notoriously volatile in winter months when seasonal factors are large and unforeseen weather can become an important issue.
Top analysts see the natural gas market trading within narrow parameters. “Our sideways view of this market is still being supported by supply levels that are within about 10 Bcf of average and by a production factor that is beginning to take on a less bearish appearance than had been the case through most of the first quarter,” said Jim Ritterbusch of Ritterbusch and Associates. In the near term he views “this week’s cold temperature patterns across the upper Midcontinent as being negated by next week’s expected warming trend. In sum, we don’t see anything on the horizon capable of pushing this market out of our projected narrow 30-cent trading range.”
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