Following the lead of both the over-the-counter and cashmarkets, natural gas futures erupted higher yesterday morning astraders covered shorts on the outside possibility that a tropicalstorm might develop in the Gulf of Mexico. The September contractwas the biggest mover, posting an impressive 21.3-cent gain tofinish at $3.987.
Although no formal advisories have been issued yet, the TropicalPrediction Center (TPC), a division of the National Oceanic andAtmospheric Administration (NOAA), is tracking a cycloniccirculation north of the Yucatan peninsula. Currently the TPC doesnot expect the low-pressure system to intensify.
“I think this is a case of somebody crying wolf,” said JimRouiller of Pennsylvania-based Planalytics. “The American Model hashad a strong bias of generating tropical storms in its forecastsand those have proved to be not only inconsistent, but alsoincorrect.” Rouiller uses a combination of several models,including those from Europe and the Navy, to formulate hisforecasts. “This low pressure system is not impressive at all. Seasurface temperatures are 86 degrees Fahrenheit in the Gulf, andwhile that is favorable, the upper level support is marginal atbest.”
Ed Kennedy of Miami-based Pioneer Futures agreed, adding thatthe market has gotten a little overzealous on this one. “There wasa wire report [about the storm] that came out just before the open,and traders responded by taking prices higher. Once the marketbegan to move, we saw some buying interest on the part of funds.”
A Nymex local confirmed the storm’s impact on trading Tuesday.”There was some practice buying out there [yesterday]. As soon asthe news hit the floor, everyone covered their shorts. Then, whenthe market moved higher without any selling resistance, peopledecided to test the upside.”
And according to a Houston-based risk manager, it was the lackof appreciable selling (and not necessarily the buying pressure)that promoted prices yesterday. “We retraced back through Friday’shigh today at $3.985 and the market didn’t once run into to heavyselling. That is unusual. Normally when a market rebounds from amove lower so quickly, you are guaranteed to see some sell stops.They just weren’t out there today.”
One plausible explanation for the lack of selling on the movehigher Tuesday, he continued, is the fact that very few people wantto go short during the month of August. “Shorts are alwaystransient in August and for good reason. It is always a littlescary being short when you have the triple threat of heat, nuclearoutages and hurricanes to deal with.”
In daily technicals, Psychological resistance is seen at $4.00.Failed downtrend resistance now stands as support at the $3.94area.
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