Throughout most of the year, the natural gas market has been supported by aggressive hedge and commodity fund buying. We continue to expect them to be active players on the long side at the start of the summer air-conditioning season, except we don’t expect them to chase this market higher. We expect to see the hedge and commodity funds return to the long side of the market if the July contract reaches the support zone at $3.197 to $3.124. This is out value zone.
Even if the buyers come back in on the long side in the value zone, we’re going to have to have a catalyst to drive it higher. This catalyst is likely to be the return of higher summer temperatures. The weather services don’t expect this summer to be as hot as last year’s, however, if we do get above average temperatures then combined with the lower production and rising exports, we will have the makings of potentially bullish trading conditions.
Extremely bullish, long-term investors just want to see a drawdown of inventories this summer so that the winter heating season starts with inventories at or near the five-year average.
Given the current conditions, I think investors are going to focus on the weather this week and on weather patterns two-weeks or even one-month out. As far as the short-term is concerned, according to natgasweather.com, overall natural gas demand should be stronger than normal until at least May 30. We could see a bullish move if any of the models put hot weather back in the news.
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