MARKET WATCHJune natural gas price escalates in rally
The June natural gas contract briefly touched $8/MMbtu in a surprise late-day rally by hedge funds that forced traders to cover short positions May 3 on the New York market.
HOUSTON, May 4 -- The June natural gas contract briefly touched $8/MMbtu in a surprise late-day rally by hedge funds that forced traders to cover short positions May 3 on the New York market.
"Futures prices through October were up 20¢ or more as hedge funds went on a calculated buying spree, forcing traders out of short positions ahead of rapidly increasing prices, which perpetuated the rally," said analysts at Enerfax Daily. The June natural gas contract jumped by 21.7¢ to close at $7.95/MMbtu on the New York Mercantile Exchange. On the US spot market, however, gas at Henry Hub, La., lost 7¢ to $7.55/MMbtu.
"By all accounts the nation is flush with natural gas and inventories are expected to build quickly over the next several weeks. Above-average temperatures will stretch across the entire middle of the US through the rest of this week, exceeding seasonal norms by as much as 12 degrees in the Midwest and southern plans through May 7," Enerfax analysts reported. That warm weather is expected to fan out to co cover most of the US through May 17.
Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "Natural gas was leading the energy complex but is now facing strong resistance levels."
Meanwhile, crude futures prices for both North Sea Brent and benchmark West Texas Intermediate continued to decline but "managed to hold technical support levels with the combined help of a confused hostage taking in Nigeria and continued gasoline support," Jakob said.
Rebel gunmen took—but reportedly later released—eight foreign hostages aboard a floating production, storage, and offloading vessel in the Okono-Okpoho oil field operated by Eni SPA about 60 miles off Nigeria. In a separate incident, 11 foreigners and a Nigerian were kidnapped from a Daewoo Engineering & Construction Co. site near Port Harcourt in the Niger Delta. That was in addition to a May 1 raid in which a Nigerian sailor was killed and six foreign workers were taken from a Chevron Corp. offshore vessel (OGJ Online, May 3, 2007).
"Fresh conflict in Nigeria has pushed Brent crude above $66 this morning," said analysts May 4 in the Houston office of Raymond James & Associates Inc. "The Okono-Okpoho field declared force majeure—a legal step that 'pardons' the operator [Eni] from contracts to export oil," they said. "The field currently produces 50,000 b/d, which compares with 600,000 b/d already shut-in in Nigeria."
Jakob said, "With Nigerian hostage taking turning into farce, suspension of Belgian strikes, [and] lesser Arab-Persian geopolitical risk, the incentive for weekend short-covering is only mild."
The June contract for benchmark US light, sweet crudes dropped 49¢ to $63.19/bbl May 3 on NYMEX. The July contract lost 40¢ to $64.95/bbl. On the US spot market, WTI at Cushing, Okla., was down 48¢ to $63.20/bbl. Heating oil for June delivery declined by 0.73¢ to $1.85/gal on NYMEX. However, the June contract for reformulated blend stock for oxygenate blending (RBOB) gained 1.5¢ to $2.25/gal.
In London, the June IPE contract for North Sea Brent crude dropped 20¢ to $66.05/bbl. Gas oil for May lost $4.75 to $580/tonne.
The average price for the Organization of Petroleum Exporting Countries dropped 50¢ to $63.11/bbl on May3.
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