Nat. Gas Petrospectives – June 15, 2010

Natural gas prices broke and settled – just – above $5.00 per million Btu yesterday in a move that is now starting to attract attention from traders and investors unaccustomed to trading this market. It also seems that one group that has been trading this market – funds – may be changing their bets from the short side to the long side. In any event, funds were reportedly buying yesterday, along with commission houses and end-users, all afraid of missing a move higher.

Temperature forecasts, which have been calling for hotter-than-normal readings, were augmented yesterday by a National Weather Service bulletin that it was monitoring a tropical disturbance or depression in the east Atlantic and it suggested that it could develop cyclonic activity. This is a little earlier than normal, but it is still within the June 1 to November 3o ‘season’ for tropical Atlantic activity.

Yesterday’s settlement above $5.00 was a technically positive development, especially after last week’s inability to get beyond $4.995. Prices made it as far as $5.069 before selling came in, and they settled above $5.00, but they will need a second settlement above that level to confirm the breakout to the upside today.

Needless to say, any fresh tropical development in the depression in the east Atlantic will catch traders’ attention today. It will not take much to spark a new round of buying. But, by the same token, any downgrading of the risk is likely to cause traders to sell in this market. Technically, it is important for prices to keep moving higher to give us at least a second close over $5.00/mmBtu. It does seem, though, that both funds and commission houses are buying in this market, now.

Technical Recap

Volatility Term Structure

Volatility Smile

***From NYMEX Settlements

Significant Activity:

1. N10 4000 P

2. Q10 4900 C

3. N10 5000 C

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