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Storage, Technicals Usher Futures Lower

Storage, Technicals Usher Futures Lower

Long liquidation, that began with local selling Wednesday afternoon, continued yesterday at the New York Mercantile Exchange as traders sided with bearish supply figures and ignored bullish demand predictions. The August contract tumbled 8.5 cents to $2.309 and September matched that by dropping 8.6 cents to finish at $2.333.

Although it began early Wednesday afternoon, the real price rout did not get underway until Wednesday's Access trading session. "Longs were eager to liquidate. They just wanted to make sure the [American Gas Association] didn't offer up a bullish surprise," a Gulf Coast marketer said. But the AGA gave them exactly what they needed when it said that industry injected 91 Bcf into storage last week. "That gave sellers the green light," he continued.

Storage levels now stand at 2,033 Bcf compared to 2011 Bcf at this time last year. But Ronald Barone of PaineWebber does not expect storage will be able to keep up the pace. "We reiterate that given declining deliverability, we do not foresee a material build in the year-over-year storage surplus, he wrote in Natural Gas Insight dated July 1.

However, a large storage refill was not the only bearish factor in the market yesterday. By gapping lower on the open Thursday, the market completed what is commonly referred to as an island reversal pattern, a chart watcher said. An island reversal pattern is a chart formation marked by either a gap higher followed by a gap lower or a gap lower followed by a gap higher. In either case the market trades for a few days between the gaps, effectively forming an "island." In this scenario the island represents a top, which points to the possibility of further losses ahead.

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