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Futures Higher Before, After Bullish Storage Data

Futures Higher Before, After Bullish Storage Data

After slipping 2.5 cents Tuesday, the May natural gas futures contract climbed back up to just below stubborn support at $2.19 yesterday in tenuous trading ahead of the release of the American Gas Association (AGA) storage report. May finished the session up 3 cents to $2.174.

Sources polled by NGI Wednesday pointed to increasing concerns that lower production and deliverability levels will create a supply-demand imbalance in bull traders' favor in the weeks and months to come. "There are some people who feel that production is off 3-5% in the last 12 months and I think we are starting to see it, not only in the price, but also in storage injection figures. There is just not as much gas available as there was a year ago," he said.

And if the latest supply data handed down from the AGA Wednesday afternoon was any indication, he may be right. In their weekly report, the AGA estimated only a net 2 Bcf was injected into the ground last week. That figure pales, not only compared to market expectations in the 20-40 Bcf range, but also to last year's 54 Bcf injection figure. The often-quoted year-on-year surplus now sits at 234 Bcf, down from the 286 level of a week ago.

By 6:40 p.m. EST last night the storage report already was being factored into prices as the May contract muscled an additional 2.9 cents higher to $2.203.

However, a Gulf trader believes a decrease in potential supply is not the only factor pointing to additional gains. He targets strong cash prices and heavy long positions held by fund traders as indications the market still has room to trend higher. "Funds don't typically ride a price move for 10 or 20 cents. No, they are in it for the 40- or 60-cent move. And because they have only been on the long side of the market since last bidweek, I'd say there is still some upside left in this thing." Additionally he feels that a bullish bias has already been embedded into nearby cash prices. "May basis has tightened considerably in the Gulf. Historically Columbia Gulf trades about 3.5 cents off futures, but that has shrunk to just 2 cents recently," he said.

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