Still floundering around in its recent trading range, which sits roughly between $6.500 and $7.500, May natural gas futures on Tuesday found early resistance at $7.020, located support a little later in the morning at $6.790, and traded between those two price levels for the remainder of the session before closing at $6.908, up 2.6 cents on the day.
While natural gas trading continued to be uneventful, the petroleum futures complex continued to show strength, led by a strong session in unleaded gasoline. May gasoline climbed 4.52 cents to close at $2.0544/gallon as reports of steep summer pump prices hit the news. After venturing over $69/bbl for the first time since Sept. 1, 2005, prompt-month crude on Tuesday closed 26 cents above Monday to settle at $68.98/bbl. May heating oil closed 1.01 cents higher at $1.9555/gallon.
“Natural gas has probed the upside in sympathy with the new highs on the petroleum side, but lacks solid fundamentals of its own and will be at risk if crude oil does reverse course,” said Tim Evans, an analyst with IFR Energy Services. “The market looks like it hit resistance at $7.02, a Fibonacci 61.8% rebound of the prior $7.25-6.65 decline. That helps define it as a possible upward correction within an ongoing bear trend. Natural gas will have to do more than that to establish a bottom.”
Evans said he is now 100% short May natural gas from $7.04 with a protective buy stop at $7.07 to reduce risk on the trade.
Top traders are taking a look at the Btu differential between natural gas and petroleum products. “The Btu spreads hit a new high [natural gas is cheap versus the complex] this past week,” observes Mike DeVooght of DEVO Capital, a Colorado trading and risk management firm. He said that the relationship can be ignored over the short term, but given time they usually come back in line. “Last year the spread was trading rich (crude oil over natural gas) going into the spring and by mid-summer, natural gas exploded higher. Time will tell if [natural] gas rallies or the complex breaks, but we think by mid-summer, we will see the Btu spreads back in the middle of the historical range.”
On an MMBtu basis, May crude on Tuesday settled at $11.497/MMBtu, or $4.589 higher than the May natural gas close. With an even larger spread, May heating oil settled at $14.161/MMBtu, or $7.253 higher than the May natural gas settle.
Weather bulls may have to turn their attention to forecasts of upcoming warmer temperatures to spur demand for natural gas-fired electrical generation. The National Weather Service forecasts that for the week ended April 15, above normal accumulations of cooling degree days (CDD) are expected in the populous states of Florida and Texas. Texas is forecast to receive 47 CDD, or 23 more than normal and Florida is expected to endure 54 CDD, or 12 more than normal for this time of year.
Longer-term traders seem to be sending mixed signals about expectations for this summer’s weather in major metropolitan areas. On the Chicago Mercantile Exchange’s Globex electronic platform, weather futures are traded for major metropolitan areas around the globe. Settlement prices posted Monday for Chicago summer weather show 180 CDD for June, 285 for July, and 230 for August. These figures are well below the normal summer CDD tallies reported by AccuWeather of June-August of 189, 313, and 266. New York City CDD futures tell a different and warmer story. The Globex settlement prices for June-August show 235, 383, and 390 CDD whereas a normal New York City summer registers 203, 366, and 326 for the June-August period, according to AccuWeather statistics.
Globex settlements on Monday for both cities are well below the sizzling summer of 2005. Chicago scored 343, 396 and 349 CDD and New York City 288, 398, and 464 CDD during the June-August period for 2005.
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