After gapping lower at the opening bell, the natural gas futures market clawed its way slowly higher throughout the trading session on a combination of technical short-covering and bargain hunting. April finished at $7.067, down 22.3 cents for the session but up more than 13 cents from its early-session low of $6.93.
Though on paper it was a bad day for bulls, traders are not ready to throw in the towel. “Very important that we managed to settle above $7.00 [Monday],” noted technician John Pringle of GSC Energy in Atlanta. “Now that we have tested the downside, I would not be surprised if we moved up to test the resistance at $7.30.”
And while technical factors seem to have helped buoy the market during the session Monday, it was the near-term weather forecasts that sent it lower in the overnight session Sunday. According to the National Weather Service, mild weather is expected to set in across the Mid-Atlantic and Northeast. For the week ending April 1, the NWS predicts that New England will receive 144 heating degree days (HDD), or 33 fewer than normal, and the Mid-Atlantic states of Pennsylvania, New York, and New Jersey will experience only 140 HDD, or 17 fewer than normal.
For IFR Energy Services, this forecasted warm-up will likely cap any bullish advance. “If this new forecast pans out, we think it could spell the end of the upward corrective phase of the past two weeks, with a resumption of the larger winter downtrend resuming in its place,” the New York-based group wrote in a midday note Monday.
Meanwhile, other traders see natural gas futures in a trading range. “We should start to see the markets’ focus shift to summer demand, which could be supportive if the Btu spreads hold around current levels,” said Mike DeVooght, president of DEVO Capital, a Colorado trading and consulting firm. He added that if “the (petroleum) complex should start to break or if we have a cool start to the cooling season, the gas market will be hard pressed to hold current levels. We feel the highest probability is for the gas to go into a trading range ($6-7.50) for the next four to six weeks.”
On a Btu basis, May crude oil settled Friday at $64.26/bbl or $10.71 per MMBtu, and April heating oil finished at $1.7924/gallon or $12.98 per MMBtu.
Tom Saal of Commercial Brokerage in Miami, in his work with Market Profile, suggests that April futures will test Friday’s “value area” between $7.184 and $7.368. He pegs upside resistance at $7.550 and support at $6.770.
GSC Energy pegs support at $6.63 and looks for an intermediate-term trend higher as long as prices do not breach this level.
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