Gas Petrospectives – July 14, 2010
Natural gas prices rallied 13.4 cents on Friday as traders returned to their new central theme of hot weather and fear of tropical activity making an appearance along the US Gulf Coast. There were also reports of heavy short-covering heading into the weekend, which brings us back to our weather and tropical storm activity focal points. The most recent weather forecasts are calling for hot weather in many to most of the leading gas-consuming regions (for electrical generation).
Prices never did return to their optimal purchase area in the $4.45-$4.50 zone. But, that is often the case in bullish markets; traders are so keen to buy that they cannot wait for prices to return to the theoretically best buy prices. This can sometimes backfire and give us premature double tops, but if natural gas prices are going to advance from here, the figure they need to worry the most about is the major resistance at $4.99-$5.00. A print above $5.00 would be bullish and would suggest higher prices.
Fundamentally, natural gas is less clear-cut. We still have plenty of natural gas in storage. But, the year-to-year surplus has been slowly dissipating and we could enter next heating season without a surplus at all if we have any shut-in production because of tropical storm activity – or if we get extensive periods of excessively hot weather across large tracts of the country.
Natural gas traders have also discounted surpluses in gas storage over the last two years, and it does now seem that the surplus was fully discounted at $3.81/mmBtu. During the latest reporting period (ended Tuesday, June 8th), managed money accounts were actively covering short positions and were even getting long. They are still net short, but this could represent a new predilection on the part of natural gas managed money accounts. If the funds keep buying, it could push prices up dramatically.
Commentary by Cameron Hanover
Technical Recap
Volatility Term Structure
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***From NYMEX Settlements
Significant Activity:
1. N10 4000 P
2. Q10 4900 C
3. N10 5000 C
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