Natural gas price bulls took a hit late last week as prompt-month natural gas futures sold off, taking technical indicators out of oversold territory ahead of the June contract rolling off the board Wednesday.
The June New York Mercantile Exchange (Nymex) contract settled at $2.520/MMBtu Friday, down about 14% from an intraday high of $2.924 the day before. The pullback followed a roughly 50% rally in May that had technicals flashing oversold levels.
“June goes off the board tomorrow, meaning technicals will likely take a back seat to position squaring ahead of the expiration, not to mention we think a number of speculators likely closed their June positions last week ahead of the long holiday weekend," said NGI’s Pat Rau, director of Strategy and Research.
To the extent technicals do apply for June, the contract had support at $2.392 and resistance at $2.924, Rau said.
The July contract, which settled at $2.773 on Friday, also sits between major technical levels. On Tuesday, July had major support at $2.732 marked by the upward trendline that has been in place since early May, and major resistance at its 200-day simple moving average of $2.830, Rau said.
“If support fails to hold, its first test will be the previous reactionary high at $2.657. Secondary resistance exists at the previous $3.02 high trade posted on January 9,” Rau said.
By midday Tuesday, June futures were trading up 1.6 cents at $2.536, while July futures were up 1.8 cents at $2.791.
Professional speculators reduced their natural gas net short positioning for the week ending Tuesday, May 21, according to Friday’s Commodity Futures Trading Commission Commitments of Traders report.
Speculators shed 30,296 short positions in the week by buying contracts to cover the positions, according to StoneX Financial Inc.’s Thomas Saal, senior vice president of energy. The traders also added 1,468 long positions, for a net shift of adding 31,764 long positions in the week.
One factor that launched futures in May was a short squeeze that forced speculators to close (buy back) short positions over the past three weeks, but with that played out there are “near-term downside risks as the market searches for new buyers,” EBW Analytics Group analyst Eli Rubin said.
