Natural gas futures fell hard on Monday, settling at $2.879 per mmBtu after reaching a previous high of $3.04 during early trading.
While weather forecasts remained positive for natural gas bulls through the first week of March and withdrawals in upcoming reports are expected to be bullish, the reason for the decline is likely attributable to large money shorting the commodity prior to March options expiration on Tuesday. The contract month for March ’15 delivery of natural gas expires on Wednesday.
“We see this often on the day before options expiration when a commodity has run higher and hedge funds are short,” said Steve Kingston, a reporter for NatGasInvestor.com. “With their big money, they go ‘all-in’ in an attempt to drive down prices and cause panic in the market.”
So far, it appears to have worked.
“The question is how long they will attempt to continue driving down the price before covering on Tuesday,” said Kingston. “They have to cover sometime, and I expect a strong run of covering into the 2:30 pit close.”
Natural gas traders and investors will look for the commodity to regain its previous support level of $2.92, which will now act as resistance. Strong support is at $2.79.
The Weekly Gas Storage Report on Thursday from the U.S. Energy Information Administration (EIA) is the next milestone for the commodity. Analysts are expecting a withdrawal of -237 Bcf. Last year’s withdrawal was -95 Bcf for the same reporting period, and the five year average for the week is -128 Bcf.
On Tuesday, natural gas futures again traded lower at $2.86 per mmBtu.
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