Cold temperatures expected over the weekend and the continuation of strong cash market prices were enough to dissuade sellers from pressing the natural gas futures market lower Friday. At the same time, buyers were hesitant to push their luck following the recent run to seven-week continuation chart highs. As a result, the April contract was left to chop lazily sideways ahead of the weekend on light volume of 71,786 contracts. The prompt month finished at $2.359, up 0.2 cents for the session, but down 4.1 cents from its $2.40 open last Monday.
For many traders, the mystery remains the wide disparity between cash and futures values. Cash prices for the weekend slogged higher on Friday as end-users and utilities stepped up to procure supplies for the cold temperatures expected over the weekend. However, a Chicago utility buyer who bought gas in the $2.57-59 area said the forecasts of cold weather did not completely explain the more than 20-cent premium to futures he was forced to pay. “It will be interesting to see just how quickly and by how much cash prices come off [this week] as the weather moderates.” NGI‘s Chicago citygate averaged $2.56 Friday, up from a first-of-month posting of $2.41. Henry Hub averaged $2.49, a dime higher than its $2.39 March index.
According to the latest six- to 10-day forecast released Friday by the National Weather Service, early-month temperature moderation is in store for a large portion of the country. In fact, all of the East and much of the South can expect to see above-normal temperatures this week. Only the Pacific Coast and the extreme fringe of the northern Plains is forecast to experience below normal temperatures, the NWS said.
With warming weather in the cards for this week, bull traders will have to rely on a boost from Wednesday’s release of fresh storage data. However, Tim Evans of IFR Pegasus in New York doesn’t like the bulls’ chances and believes that not even a net withdrawal of 140-160 Bcf would prevent a price slide. “Once the reaction to [the storage report] has been absorbed, though, we think the market will find itself overvalued by 60 cents or so above early 1999, when the storage total was at a comparable level.”
In daily technicals, April has remained above lows in the $2.324-35 span for eight consecutive sessions and a break beneath that level would confirm that a significant top is in place. To take advantage of the free-fall potential should the market move lower, Evans looks to use a sell-stop at $2.31 to enter a 100% short position. Once in, he would use a buy stop at $2.43 to limit his initial risk. Last week he was stopped out of a $2.34 short position, basis April, by a buy stop at $2.43.
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