June natural gas futures rose Monday as traders noted bids below the market and took advantage of prices at the low end of the trading range. June natural gas futures rose 8 cents to $4.000 and July added 7.9 cents to $4.129. June crude oil rose 4 cents to $86.19 after trading as high as $87.15/Bbl.
“It looked like there were [natural gas] bids below the market,” said a New York floor trader. He added that he was not “convinced” that the market was going to take off again like it did last week. “We have been sitting in a range from $4.30 to $3.80 but I think it might test a little lower from here. There isn’t much out there to spark a big rally one way or the other.”
“There are a lot of shorts in the market and I think anytime you get a 10 to 15 cent rally it spurs short covering and that feeds on itself. I tend to think the market will stay in this range for the next six to eight weeks,” he said.
Last week’s rally was seen as a trap for the bulls. “We did get the ‘bull trap’ we had warned about in [earlier] trading, with [Thursday’s] pre-report exuberance pushing quotes above the major resistance at $4.334. Prices reached a new intraday high of $4.386, after triggering buy-stops over $4.334, but it turned out to be a trap,” noted Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm.
According to one trader the recent rallies haven’t been extensive enough to attract meaningful selling. “You do have people out there selling on rallies in the natural gas, but the problem is that the rallies haven’t been significant enough to bring a large number of sellers back in the market. There are a lot of physical natural gas sellers who are still on the sidelines, but on the financial side, there have been numerous traders willing to sell natural gas,” said Mike DeVooght, president of DeVooght Capital Management, a Colorado trading and risk management firm.
DeVooght noted that his position for hedge accounts is for end-users to stand aside and producers to hold on to the remainder of short hedges established several months ago. Speculative accounts may want to test the long side of the market.
“On a trading basis, we still see no compelling fundamental reason to cover our short positions,” he said. “But, as a trader we have been monitoring the market closely for a reason to get long the gas market. For speculators, we purchased September $4.50 calls at 38-45 cents. My position on the speculative side of the market is to be a little long the natural gas and short the crude oil.”
Students of the economy got an indication of further economic gains with the release of the April Institute for Supply Management Manufacturing Index. Expectations were for the report to show the index at a robust 61.0, ahead of March’s 59.6, but the actual figure came in at 60.4. A reading above 50 indicates economic expansion and natural gas bulls expect that the favorable report is indicative of increased industrial demand for natural gas.
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