Moving once again in lockstep with crude prices, June natural gas futures on Monday recorded a morning high of $11.598 before crashing late in the session. During the last half hour of the regular session, the prompt month dropped from $11.479 to a low of $11.249 before closing out the session at $11.301, down 23.6 cents from Friday’s finish.

While the values are far from on par, natural gas and crude futures continued to be linked in direction Monday. After peaking at $126.40/bbl in morning trade hovering around $125.68/bbl at 2 p.m. EDT, the prompt-month crude contract plummeted to a low of $123.88/bbl before finishing Monday’s regular session at $124.23/bbl, down $1.73 from Friday’s close.

“The energy markets were nuts as usual on Monday and natural gas still doesn’t appear to have a mind of its own,” said Steve Blair, a broker with Rafferty Technical Research in New York. “Both markets came off during the last half hour of their sessions. I don’t think anything has really changed over the last week. It is kind of the same old-same old. The one thing of interest was the National Oceanographic and Atmospheric Administration’s six- to 10-day and eight to 14-day forecasts in the morning were showing below-normal temperatures in the central and eastern thirds of the country, with the Great Lakes, Upper Midwest and some of the Midcontinent looking excessively cold in the near term. It is interesting that as we approach the middle of May, we still have some situations where people will be putting their heat on. Whether that will make a difference with natural gas storage injections remains to be seen.”

Analyzing the pullback Monday, Blair said he doesn’t see it as a meaningful retreat. “We still have that perception out there that storage is low, even though we are just under the five-year average level. The fact that we are almost in line with the five-year average does not matter. What matters is storage levels are currently sitting much lower than the industry expected prior to winter and during early winter. The only thing that matters is perception. Natural gas is still trading off of perceived fundamentals and technicals. This market seems to be going through small areas of congestion before breaking out higher to the next level, where it congests again. While it is doing this, you just have to trade the support and resistance numbers back and forth until it breaks out again. I think we’ll likely see some more follow-through to this pullback until we get near support, where the buying will likely come back in.”

Blair added that he doesn’t see any real near-term price weakness with the start of the Atlantic hurricane season right around the corner. “Even though the water is normally too cold for much hurricane activity to develop in June, that June 1 hurricane season start date sometimes jolts prices,” he said. “When the season kicked off last year, the whole market perception changed as fear entered the equation. The market really did not look back for the rest of the summer.”

As for the Btu comparison to the petroleum markets, natural gas is still trading at a steep discount. June heating oil’s close Tuesday translates into $26.369/MMBtu, a $15.068 premium to front-month natural gas. Likewise, June crude’s close translates to $20.705/MMBtu, or a $9.404 premium to June natural gas.

“Natural gas continues to trade at a very cheap level relative to competitive fuel oil. On a trade basis we still feel current levels represent attractive levels to do a little selling. But considering what is transpiring in the complex, you might consider using floors rather than fixed-price contracts,” said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.

DeVooght currently advises trading accounts to hold onto a spread position consisting of short October futures and long January futures established at approximately 70 to 75 cents, and end-users are advised to stand aside. Producers are advised to convert present short positions to $11.500 put options Monday morning. The earlier short positions consisted of a small summer strip at $7.900 to $8 and a second summer strip established at $8.250 to $8.350 for 50% of production.

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