Expiration

Regrouping after the 17.7-cent loss on Monday, August natural gas futures traded within the $5.965-6.025 range before settling at $5.989 Tuesday, up 3.2 cents in the uneventful session. As the soon-to-be prompt month, September futures climbed 2.6 cents to close at $6.022.

Stopping the rally from last week at least temporarily, August natural gas futures on its way towards expiration dropped 17.7 cents on Monday to close at $5.957. The drop almost erased last Thursday’s 22.1-cent rally, which was sparked by the first bullish natural gas storage report in many weeks (see Daily GPI, July 23).

As with every other non-expiration day at Nymex, Thursday’s daily natural gas settlement prices were calculated using a weighted average of the final two minutes of trading. What sets Thursday apart from every other day in the commodity’s 13-year history is that this decisive two-minute trading window took place from 11:28 to 11:30 a.m. EST.

In a surprising show of strength considering the weak underlying cash prices and a bearish storage report (7 Bcf injection) announced Thursday morning, natural gas futures rallied back to the mid-$5.20s late Thursday morning. However, buying dried up for the expiring April contract and sellers were waiting to push it lower at the closing bell. At $5.146, April completed its tenure as prompt month up 4.9 cents on the day, but down 30% since becoming prompt month. The new prompt month, May, surged 9.3 cents to close at $5.24.

Getting a little extra boost from a rebounding expiration-day screen, the uphill climb for swing prices got steeper Tuesday as what is touted as the coldest weather of what has been so far a decidedly mild winter season continued to expand into new market areas. Most gains ranged from just a couple of pennies to about 15 cents, but anticipation of a radical change in temperatures today had Northeast citygates registering larger increases, led by spikes of nearly half a dollar at Transco’s two Zone 6 pools.

With one eye transfixed on this week’s expiration of March options and futures, natural gas traders played it cool Friday as they lifted the market off its early lows to post the week’s fourth straight session described by a higher high and higher low on the daily chart. The March contract closed at $2.449, up 2.4 cents for the session and 24.3 cents for the week. As it had been all week, volume in the gas pit at Nymex was heavy Friday, with an estimated 96,779 contracts changing hands.

Shrugging off Thursday’s expiration-day sell-off, natural gas futures rebounded Friday, as traders took their cue from cold weather expected over the weekend and stronger cash market prices. The newly-crowned spot month February received the biggest buying boost, advancing 15.5 cents to finish the week at $2.774. Estimated volume of just 53,169 was evidence many traders elected to remain on the sidelines ahead of the weekend.

There were no expiration day heroics for bulls Wednesday. Despite the bullish combination of extremely oversold conditions and modestly constructive storage data, natural gas futures tumbled again as traders used the September contract as a battering ram to reach a new 19-month low. Including Wednesday’s 12-cent decline and $2.295 close, the September contract suffered losses in each of its last 10 trading sessions, trimming a whopping $1.17 or 34% from its Aug. 15 value.

Following Monday’s 8% price erosion and ahead of July expiration today, natural gas traders adopted a wait-and-see approach Tuesday, as light buying was slightly overpowered by continued short selling. At the closing bell, the July contract was 4.9 cents weaker at $3.397. Volume was light for a penultimate trading day with only 82,002 contracts changing hands.