October natural gas futures staged a late-session rally Wednesday and finished at the high end of the day’s trading range. October rose 17.6 cents to settle at $5.805, and the November contract added 11.4 cents to finish at $6.690.
Much of the day’s advance was attributed to gains in crude oil and products prices traded in nearby rings. In the early going natural gas retreated from opening strength. October crude oil rose 65 cents to $75.73.
“Natural gas is following the strength in the petroleum complex,” said a New York broker. He noted that gas futures were oversold (and therefore ripe for an advance), and “we are entering prime hurricane season in the next few days.”
He went on to suggest that although supplies of natural gas offered a comfortable cushion of more than 300 Bcf over the five-year average levels, the market may not trend much lower. “The bottom line is that there has been a lot of talk about the $4.90 level on the downside, but I think the market is bottoming in here,” he said.
One strategy the broker suggested in order to take advantage of what he believes is a market bottom is to sell close-to-the-money put options, specifically the October $5.75 strike. “If you had sold the $5.75 puts earlier today, you would have collected about 42 to 43 cents premium ($4,200 to $4,300 for a single 10,000-MMBtu contract), and that would be bringing you down to the $5.30 level to get in,” he said. Selling put options allows the seller to collect the premium, but if the market falls, the seller of the put option would have a long October futures contract “put” to him at $5.75. Subtracting the 42-43 cent premium would adjust the cost basis down to $5.32, figures show. “Now you would own it at $5.32. What’s wrong with that price?” he queried. The October futures contract made a recent low of $5.340 in trading early Tuesday.
Other traders see today’s advance as a retracement of the big fall following the Hurricane Dean-inspired advance earlier. “There was such a price build-up in anticipation of Hurricane Dean that when the market collapsed upon the realization that Dean was not a threat, the fund-motivated selling pushed the market past fair value,” said a New York floor trader.
Fair value or not, traders will be taking a close look at Thursday’s storage inventory figures. The New York broker is expecting a build of 47 Bcf, and a Bloomberg survey of 12 analysts revealed an estimated 48 Bcf increase, the median of the poll.
MDA EarthSat reported only nominal tropical activity in the Atlantic. “A low-pressure system between Florida and Bermuda has not changed much overnight. Easterly wind shear is preventing faster development, but conditions should become more favorable for tropical or subtropical cyclone formation during the rest of this week,” said meteorologist Matt Rogers. He pointed out that toward the end of the week “models suggest the system could affect pretty much anywhere along the East Coast.” Rogers said an area of low pressure near 40W in the eastern Atlantic looks even less impressive since Tuesday. “A new cluster of thunderstorms is moving off the African coast, and models suggest it may form into a more organized low-pressure system this weekend.”
©Copyright 2007Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |