With April expiration occurring during the week and traders suffering from a little spring fever as temperatures moved higher, May natural gas futures ventured lower Friday on low-volume trading. After putting in a $7.120 low on the day, the prompt month rebounded a little to settle at $7.210, down 27.7 cents for the day and 24.7 cents lower than the contract’s close in the previous week.
With the April contract going off the board on Wednesday at $7.233, traders were content to take it easy for the remainder of the week, giving the May contract an easy opening as prompt month.
“It was dead out there Friday,” said Brad Florer, a broker with ICAP Energy. “We really gave back a lot of the drift up that we saw during the week. We were moving into the weekend and people came in and took some off the table. There is no real concern on either side, so when there is any sort of quantity, either bidding or selling, the market is going to move 20 cents. I don’t think Friday’s move was significant.”
Florer said he doesn’t see any departure from the market’s sideways motion in the near term. “We seem to have found a bottom here back at that $6.45, so now bears are frustrated and discouraged that despite massive amounts of storage and periodic bearish information bursts, there is no additional selling. On the other side, bulls are afraid to jump in with storage at record levels.
“Until we get a clear look at what summer temps are going to look like and a better idea on what the hurricane season might bring, I think we are destined to see a lot of sideways movement here,” he said.
On Thursday the Energy Information Administration (EIA) released natural gas inventory data showing withdrawals for the week ended March 24. The 104 Bcf withdrawal sent stocks down to 1,705 Bcf. Natural gas storage is now on track to end the withdrawal season March 31 at well over 1,600 Bcf, the highest level since 1,912 Bcf was recorded at the end of March 1991.
Florer said there will likely be at least one more pull from storage before the market begins to see injections. “I’d expect to see at least one more withdrawal, but it really doesn’t matter at this point,” he said. “Storage is set. Even if it was to be a hot spring, I don’t know how much that could affect supplies.”
Longer term, analysts expect that market uncertainties will provide a cushion for not only natural gas prices but petroleum as well. “Fears of supply interruptions will continue to support crude and [natural] gas prices above the level indicated by the supply-demand balance,” said James Williams, an economist at WTRG Economics.
Others see burdensome supplies as being problematic for higher prices. “The tame winter produced an accumulation of supplies that will be hard to burn through, even with a warm summer,” said Thomas Hartmann, an analyst at Altavest Worldwide Trading. “A scorcher will be needed for people to crank up their ACs for months to reduce this glut before winter rolls around again.”
Energy bulls also see supply difficulties. According to Sean Brodrick of Weiss Research, the Energy Department has been saying natural gas production is no problem. Yet “it has lowered its outlook for future natural gas production for the past five years in a row,” he said. Potentially disruptive tropical weather is also right around the corner, Brodrick points out. “The hurricane season — with its potential for carnage in the Gulf of Mexico’s ‘energy alley’ — starts in June. Time is short, and all expectations are that this hurricane season will be another busy one. Natural gas is way under priced.” he said.
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