Although the official start of summer is still more than two weeks away, the amusement park season officially opened at Nymex Wednesday. In a roller coaster-like session, the July contract twice soared and descended as fund and local trader technical buying met with equal parts producer selling.
After the dust had cleared and the orders tabulated in the data room at Nymex, the numbers from Wednesday’s session were impressive. Although only notching a 1.5-cent gain to close at $6.375, the July contract etched a new, 12-week high and traded within a wide, 39-cent trading range. Estimated volume of 84,898 contracts was more than 70% higher than in Tuesday’s lackluster trading session.
Traders agreed that Wednesday’s session was an epic battle between technical bulls and producer hedgers. After having been notably absent from the market as it rallied back from $5.00, producers entered fray Wednesday as prices moved past key resistance at $6.52. “We saw some good scale up selling from producers [Wednesday],” said Ed Kennedy of Miami-based Commercial Brokerage Corp. “They weren’t satisfied with $5.00, $5.50 or even $6.00, but when prices ticked over $6.50, they jumped.”
Kennedy continued by pointing out that even if the producers believe prices are headed higher, the $6.50 level is not a bad spot, at least from a historical perspective, to lock in a portion of their production.
“If we had gotten a settlement above $6.52, I would have shed my bear coat and called for an additional $1 or $1.30 of upside…,” he added. “On the other side of the coin, we just missed a key reversal on the daily charts.” He pointed to July’s $6.375 close, which was narrowly above Tuesday’s $6.36 settle. A key reversal, Kennedy explained, is achieved when the market makes a new high and then settles that session below the prior two days’ closes.
While technical factors have played a large role the market’s recent upturn, they will not have much impact Thursday at 10:30 a.m. EDT when fresh fundamental data is released by the Energy Information Administration. Forecasters are calling for an injection of 100-120 Bcf, which would easily exceed the five-year average refill of 90 Bcf. Meanwhile, anything greater than 111 Bcf will represent the largest weekly refill in 10 years of EIA weekly data. During the same week last year, the market managed an impressive 107 Bcf increase.
However, Kennedy, who predicts a 100 Bcf refill, cautions traders not to put all their eggs in the storage basket. “Sure we will probably get a triple digit number [Thursday] and probably another one next week. What will really be telling, though is when you get injections like that coupled with a weather report calling for normal and below-normal temperatures in July. That is when it becomes scary to be a bull.”
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