July natural gas futures rose in volatile trading Friday as markets responded to an employment report showing fewer job losses than had been anticipated and traders expressed interest in the more distant portion of the price curve. July natural gas futures rose 5.8 cents to $3.868 and August gained 7.2 cents to $4.042. July crude oil fell 37 cents to $68.44/bbl, and the Dow Jones Industrial Average gained 12 points to 8,763.
Trading got off to a fast start even before the opening of floor trading at the New York Mercantile Exchange. A half hour before open-outcry trading began at 9 a.m. EDT May employment data was released by the U.S. Labor Department. It showed that nonfarm payrolls decreased by 345,000 during May, about half the rate of previous months and a significant improvement over market expectations of 520,000 job losses and April’s 539,000 lost jobs. The unemployment rate, however, rose to 9.4%, higher than April’s 8.9% and the 9.2% the market was expecting. Natural gas markets soared along with crude and equities. Prior to the report July natural gas was trading at $3.831, but it jumped to $3.986 after the report was released. June Dow Jones Industrial Average futures jumped 81 points after the report to 8,860.
Traders noted that interest was shifting to the more deferred contracts. “With the cash market being significantly below the screen and with the strength of crude oil, people are putting more stock in the November-March section of the board for next winter,” said a New York floor trader. He added that “we have enough gas now and the spreads are reflecting that. July-October on Monday traded 38.5 cents [October over] on the floor, and July-October now is 52 cents bid at 57 offered. October-January is at $1.79, and I remember that being $1.66.
“If you are doing anything, you are selling the front end of the curve and buying something else. The front month is basically follow-the-leader relative to the other commodities like crude oil. It’s basically a headless horseman.”
Maybe not a headless horseman, but others see the front end of the curve increasing its distance relative to the back contracts. “We feel that new wide contangos are likely to be achieved as an extremely soft physical trade weighs on nearby futures while weather uncertainties and prospects for less output/greater demand support the winter portion of the curve,” said Jim Ritterbusch of Ritterbusch and Associates.
Ritterbusch is a cautious bear. “All in all, we are maintaining a bearish trading bias in this market in anticipation of an eventual price decline to the $3.40 area. But we would continue to advise selectivity in establishing fresh shorts by awaiting rallies to above the $4.00 mark before establishing positions,” he said in an afternoon note to clients.
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