Natural gas futures were rallying in early trading Wednesday as analysts pointed to tight fundamentals, while the looming Nymex prompt month contract expiration raised the possibility of volatile price action ahead.
The expiring June contract was up 36.2 cents to $9.158/MMBtu at around 8:45 a.m. ET. July was trading 35.4 cents higher to $9.190.
EBW Analytics Group observed a “burst higher” in liquefied natural gas (LNG) feed gas nominations overnight. After volumes had dropped to 12.0 Bcf/d as of Tuesday, LNG feed gas totals surged to 13.4 Bcf/d in the firm’s latest estimates early Wednesday.
“Trader positioning around today’s June contract options expiration and tomorrow’s final settlement is likely to dominate immediate-term trading, particularly later in the session,” EBW senior analyst Eli Rubin said. “With ill-defined technical resistance to the high side, potential for fireworks carrying Nymex natural gas futures steeply higher over the next two days remains.”
Prices as of early Wednesday had advanced past a critical resistance target pegged by ICAP Technical Analysis at $9.052.
“If, and only if, the bulls decisively clear this level will we have a green light to set our sights higher,” ICAP analyst Brian LaRose told clients ahead of Wednesday’s session. “Gunning for $10.299 next if they succeed. And if the bulls cannot finish the job? Bears could still get a chance to grab the reins and drag natural gas back down to the May lows. For the bears, it is reverse or else.”
Looking ahead to this week’s Energy Information Administration (EIA) storage report, the median of three estimates submitted to Bloomberg as of Tuesday showed a 92 Bcf injection for the week ended May 20.
That would come in tight versus the five-year average injection of 97 Bcf. EIA recorded a 109 Bcf build for the year-earlier period.
Even with prices rallying above $9.00, Bespoke Weather Services said it’s possible for futures to set new highs ahead of the June contract expiration.
The contract expiration will occur as “folks position for what we believe will be a strong EIA report tomorrow, reflecting supply/demand balances that are way too tight for any degree of comfort,” Bespoke said. “The weather side is pretty neutral, however, as the longer-range pattern is not yet showing stronger heat.”
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