Free-falling Crude Oil Weighs on NYMEX June Natural Gas

Pressured by a plummeting crude oil, NYMEX May natural gas moved back down the charts on Wednesday finding a low of $6.54. However, the recalcitrant front month declined to break below technical support at $6.50, and its modest overall losses of 14 cents were dwarfed by June crude oil's staggering $2.33 retreat. The two contracts settled at $6.606 and $72.28 respectively.

Given the front month contracts' relatively low key performance in the wake of a rapidly sliding petroleum market, one energy analyst described June gas as being "in a holding pattern - you are dealing with the June contract...Is there any tropical activity? No, but there's some warmer weather at the back end of the forecast. Is it a lot? No, but summer is coming."

Another natural gas trader said that there was too much to ignore. "The ratio is keeping nat gas in relative check, but the spreads have tightened."

Meanwhile, the apparently overextended June crude oil contract showed none of the same compunctions as it plummeted better than two dollars today following the release of a bearish set of storage reports from the EIA. In its weekly stockpile report, the Energy Information Administration said crude supplies rose by 1.7 million barrels, while closely-watched gasoline inventories swelled by 2.1 million barrels.

June natural gas was able to ignore the sell-off for most of the morning partially because "the spread to crude was so wide," noted the analyst.

However, by the mid afternoon crude losses of over $2.00 and little bullish news on the horizon forced June natural gas firmly into the red.

Looking ahead, Citigroup analyst Tim Evans said that "the intermediate to longer-term continues to look bearish both in a straight fundamental basis and in terms of its performance relative to crude oil...We think there will be that much more selling pressure on natural gas."

Looking at the charts for the June contract, technical traders see continuing support at $6.45-$6.50, $6.25 and $6.03. Meanwhile, upside technical resistance is pegged at $6.80, $7.00, $7.12, $7.20, $7.47, $7.52, $7.85 and $8.00.

Looking ahead to Thursday's (5/4) EIA inventory report, early estimates call for a build of between 60 and 70 Bcf. This would better last year's 43-Bcf injection during the same week but compare favorably to the five-year average injection of 64 Bcf.

"Given current weather forecasts and year-earlier withdrawal comparisons, we expect the year-over-year surplus to be in the 425-475 Bcf range by mid-May," said UBS Warburg analyst Ron Barone in a recent research note.

In its most recent 6 to 10-day forecast, the National Weather Service calls for warmer than normal temperatures in Texas and Panhandle area. Cooler than normal conditions are expected in the Northeast and Northwest corners of the country. Meanwhile, the rest of the Lower 48 can expect seasonal temperatures.

Looking further ahead, the 8 to 14-day forecast calls for seasonal normal temperatures in the Northeast and western Great Lakes region. The Rocky Mountains region and West should remain cooler than normal, while the rest of the country is expected to see warmer than normal conditions.

Robert Cross, robc@btu.net , www.energyinstitution.org