Fundamentals

Adding to strength experienced in the overnight access trading session, natural gas futures galloped higher Monday as short-covering made a indelible imprint on a market otherwise devoid of much trading liquidity. After gapping higher at the opening bell, the prompt June contract received a boost by supportive technical features as well as reports of nuclear unit problems. It closed at $5.689, up 43.4 cents for the session.

After initially ducking lower to equal Monday’s $5.16 low, the June natural gas futures contract struggled higher in featureless trading on its first session as prompt contract Tuesday. It closed at $5.236, up 4.6 cents for the session and 7.6 cents off its early low. Estimated volume was light, with 69,391 contracts changing hands.

Increasingly muddled technicals and fundamentals played to a stalemate Wednesday as natural gas futures traders failed to propel prices very far from the $5.00 mark. At the closing bell, the front months made small advances while the winter 2003/04 strip ebbed slightly. April finished at $5.097, up 2 cents for the session on its penultimate trading day. May, which will take over as prompt month when April goes off the board Thursday, notched a 3-cent gain to close at $5.147.

In what could be the most bullish 2-cent decline in recent memory, natural gas futures rebounded from early lows Wednesday as buyers continued to bet heavily on storage and weather holding the market up. After failing to extend down to a key downside objective at $6.70, the April contract rallied in the afternoon in light, pre-storage report short-covering. It closed at $7.021, down 2 cents on the day, but more than 27 cents above its morning low of $6.75.

Due to market fundamentals that are currently stronger than they were at the beginning of the heating season, Lehman Brothers’ Jeffrey W. Robertson said he has raised his Nymex gas price estimates to $5.00 and $4.50/MMBtu for 2003 and 2004 from $4.50 and 3.75 to reflect the tight supply/demand balance in the natural gas markets.

After opening lower in sympathy with lower cash market prices, natural gas futures rebounded Wednesday in reaction to wide price swings in the nearby crude oil pit. Although they finished well beneath their highs for the session, both natural gas and crude oil futures managed gains on the day. January natural gas finished at $5.278, up 3.8 cents for the session and January crude closed at $30.44, up 34 cents.

Working off oversold conditions, natural gas futures turned higher Tuesday, as locals tried to pick a bottom, and trade and commercial sellers were slow to emerge. The end result was a 9.4 cent gain to $3.872 for the December contract, just a few ticks below its high for the session. Estimated volume was 65,897.

Having already experienced a wave of long liquidation (Friday) and a short-covering squeeze (Monday), natural gas futures were left without a major price influence on expiration day Tuesday. Modest, market-on-close selling tipped the scales in bears’ favor in the last 30 minutes of trading. The November contract finished at $4.126, down 5 cents for the session, but 23.7 cents higher than the level from which the market began its tenure as prompt month.

Natural gas prices reflect a degree of enthusiasm that is typical for this time of year, particularly if there are hurricanes lurking in the Gulf of Mexico, but according to one market observer, once traders weigh healthy storage inventories against expected winter weather, an option strategy designed to take advantage of high levels of volatility may be the trade to make.