Sentiment

The underlying fundamentals for natural gas prices — minus any weather-driven problems — remain extremely bullish, and sentiment in the gas market will improve over the coming months, according to a new report by Raymond James. Its current 2005 gas price forecast is $6.80/Mcf, with 2006 and long-term gas forecasts at $7.50/Mcf.

The underlying fundamentals for natural gas prices — minus any weather-driven problems — remain extremely bullish, and sentiment in the gas market will improve over the coming months, according to a new report by Raymond James. Its current 2005 gas price forecast is $6.80/Mcf, with 2006 and long-term gas forecasts at $7.50/Mcf.

After dropping 5% Thursday in reaction to the overwhelmingly bearish storage news, the natural gas futures market rebounded Friday as traders covered shorts ahead of the weekend. Adding to the bullish euphoria over the expected chill over the weekend, traders were reticent to hold short positions for fear that the market would rally if another round of chilly forecasts were issued Monday morning.

It was not a very stellar week for Nymex natural gas bulls. After notching a new, three-month high and closing the previous week in fine form, natural gas futures entered last week poised to move higher. As it turns out, however, looks can be deceiving and the July contract was hit with a wave of negative price factors last week.

Almost exactly as it did Friday, natural gas futures opened higher, but ultimately tumbled lower Monday as technical factors and scale-up selling dictated the trading action. The August contract finished at $2.947, up 1.4 cents for the day, but more than a nickel below its mid-morning high at $3.00. Volume was heavy with an estimated 108,301 contracts changing hands.

Almost exactly as it did Friday, natural gas futures opened higher, but ultimately tumbled lower Monday as technical factors and scale-up selling dictated the trading action. The August contract finished at $2.947, up 1.4 cents for the day, but more than a nickel below its mid-morning high at $3.00. Volume was heavy with an estimated 108,301 contracts changing hands.

Despite languid cash market prices and plentiful supply heading forward, natural gas futures exploded higher Friday as traders covered shorts and squared their books ahead of the four-day holiday weekend (some cash traders admitted having to work a half-day Monday, but the futures market will remain closed until 7 p.m. EST Christmas Day for Access trading and until 10 a.m. Wednesday for regular pit trading). By virtue of its 20.9-cent rally and $2.895 closing price, the January contract broke to new three-week highs Friday, and moved above the February contract for the first time since Nov. 2. Heavy trading activity punctuated the move, with 116,361 in estimated volume.

Following on the heels of Wednesday’s dime advances, natural gas futures continued higher Thursday as nervous buyers re-entered the market to cover short positions. Gains were greatest in the prompt month, November, which advanced 5.1 cents to finish at $2.531. Comparatively, the out-months were less impacted by the buying pressure, as the front end of the market was limited to modest gains, while the back end of the market experienced slight losses. Volume was on the high side with 87,773 contracts estimated to have changed hands.

Due in part to the company’s limited exposure in California and “overdone negative market sentiment” pertaining to the decline in spark spreads and fears of regional capacity overbuild situations, UBS Warburg analyst James Yannello said Dynegy is a company that is on the move, upgrading its rating from ‘buy’ to ‘strong buy’ last week.