DJ Natural Gas Pulls Back After an 'Overcooked' Rally
By Timothy Puko
Natural gas prices retreated slightly Tuesday as traders pulled back from a five-session rally that analysts said was
based on overly optimistic expectations for demand.
Natural gas for June delivery settled down 4.1 cents, or 1.5%, at $2.78 a million British thermal units on the New
York Mercantile Exchange. The losses ended a rally that had pushed up the market more than 13% since it hit a nearly
three-year low on April 27.
That rally pushed too far, too fast, analysts said. Demand is likely to increase in the summer, but production is
still near a record high. And for the next few weeks, temperatures look very comfortable, enough to create big
surpluses of natural gas because there won't be a demand for it to heat homes or burn it for electricity to run air
conditioners.
"Warmer than normal temperatures in the Northeast will be bearish until June," Aaron Calder, senior market analyst at
energy-consulting firm Gelber & Associates in Houston, said in a note. "There's some hope that the warmth will spill
over into the summer, and eventually lead to demand, but that's not the case just yet."
J.P. Morgan Chase & Co., in a note sent to clients last week and released to reporters Tuesday, said the recent rally
was an opportunity to dive back in on a bearish bet for the November contract, which settled Tuesday down 2.7 cents, or
0.8%, at $3.009/mmBtu. The trade should target a payoff for dropping to $2.82/mmBtu, but investors should get out if
prices rise above $3.05/mmBtu, the bank's analysts said.
"The recent price rally...has simply become overcooked," Jim Ritterbusch, president of energy-advisory firm
Ritterbusch & Associates, said in a note to clients. "The market appears (overpriced) by as much as 25-30 cents given
the fact that...short-term temperature forecasts are negligibly changed from a week ago."
Write to Timothy Puko at tim.puko@wsj.com
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(END) Dow Jones Newswires
May 05, 2015 14:52 ET (18:52 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
050515 18:52 -- GMT
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