DJ Natural Gas Rallies to Three-Session Win Streak After Selloff Stalls
By Timothy Puko
Natural gas rallied from losses Thursday, surprising analysts and traders who had expected the year's biggest
addition to stockpiles would sink the market.
The counterintuitive move probably came from investors who trade based on momentum and charts, traders and analysts
said. They have been focused on a nearly three-year low that gas hit last week and may have decided get out of bearish
positions when a brief selloff Thursday stalled short of seriously testing that low.
Most gas trades from money managers have been short, meaning they pay off when prices fall, according to government
data. To close out those bets, they have to buy back contracts they once sold, and that can cause prices to rise when
large groups of traders all move to do that at once.
"The short side of the trade has become overcrowded," said Aaron Calder, senior market analyst at energy-consulting
firm Gelber & Associates in Houston. People who bet against gas "started exiting the market -- seeing the writing on
the wall -- and now everyone is doing it as they see what's going on."
Natural gas for May delivery settled up 7.4 cents, or 2.8%, at $2.684 a million British thermal units on the New York
Mercantile Exchange. It was the highest settlement in two weeks. Gas hit a three-session winning streak, its longest
since early March.
This is a time of year when natural-gas prices usually bottom out, which had added to the recent momentum to bet
against gas. The market is highly dependent on cold weather to drive heating demand and hot weather to drive demand for
air conditioners that run on gas-fired power. Mild spring weather limits that demand and prices have eased in the past
month, following the common trend.
Thursday's activity initially seemed to fall in line after the U.S. Energy Information Administration reported the
largest addition to stockpiles of the year. Storage levels grew by 63 billion cubic feet in the week ended April 10,
nearly triple the addition during the same week a year ago and nearly double the five-year average addition for the
week. It was also 11 bcf more than the 52-bcf consensus average of 18 forecasters surveyed by The Wall Street Journal.
Mr. Calder said that was a sign the market is still oversupplied. On top of tepid seasonal demand, the shale-gas boom
has led to near-record production for more than a year nearly halving prices from a year ago.
Prices fell more than 2% immediately after EIA released the data, but the selloff stalled just minutes later. Prices
stabilized before falling below the daily highs the gas market set during a losing streak last week that had pushed gas
to lows unseen since June 2012.
That stalled selloff appeared to trigger the traders who move based on charts and then started the rally, traders and
analysts said. These traders can become leery when the market doesn't swing as far in one direction as they may have
expected, and so they switch their direction, traders and analysts said.
"There's nothing that changed in the fundamentals," said Dean Hazelcorn, trader at the brokerage Coquest Inc. in
Dallas. "These are real old-school rules, but when the market doesn't react bearish to a bearish report, watch out.
We're in watch-out mode."
Write to Timothy Puko at timothy.puko@wsj.com
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(END) Dow Jones Newswires
April 16, 2015 15:19 ET (19:19 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
041615 19:19 -- GMT
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