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NatGas Futures Values Headed Up, Up and Away?

Natural gas futures bulls made a strong statement Friday as they not only secured the gains of the week, but also built upon them, leaving market watchers to seriously ponder whether the lows for the extended downtrend were already in. The June contract soared another 23 cents Friday to close at $4.311, up an astonishing 76.5 cents from the previous week's finish.

With the $3.155 front-month low from April 27 fading further into the distance of the rear-view mirror, traders and analysts alike are beginning to become comfortable with labeling that price level "the bottom" of the downtrend that began back in July 2008 (see related story).

"We saw some significant strength in natural gas futures on Friday. The bulls have decided to make this move the 'go' move," said a Washington, DC-based broker. "We've seen a mixed reaction from some of our clients over the past few weeks. We had one fairly big marketer that had been buying all of the way down. I called him as we started to bottom and he said they were finished...that their end-user clients are happy because they kept getting lower prices. While they were on that downward sliding slope, one of my other big marketers is starting to wake back up. They probably missed the bottom too and will end up buying at the same prices as the first marketer, just in reverse order as this thing moves back up."

The broker said he definitely thinks there is some end-user buying in this move higher. "The Baker Hughes rig count for operating U.S. natural gas rigs during the week ending May 8 dropped by 11 and now stands at 730, so the reduced supply effect could begin showing up by the end of the month. Maybe there are some people moving in anticipation of that."

Looking at key resistance levels, the broker singled out $4.420. "We went though $3.950 without blinking, so $4.420 is next on the list. We see that price level as fairly key in determining just what kind of a move we're in."

The broker added that the bulls have a couple of things going for them right now. "The way we moved higher Thursday following the healthy 95 Bcf storage injection report is certainly bullish behavior. The fact that it kept moving higher kind of cements the recent strength. If I'm short and I've been making money, I have to start thinking about taking my profit and getting out."

He also noted that gas futures might also be influenced by the recent strength in crude, which saw the June contract close Friday at $58.63/bbl, up $1.92. "The same green shoots and optimism that might be sprinkling around the crude side of the energy patch might also be infecting natural gas," the broker said. "Crude has rallied $15 off of all-time high inventories and now we're at a new 2009 high price for crude. Markets are forward looking...whether they are going to look right into a wall is another story."

Economy watchers were pleased with the 8:30 a.m. EDT Friday release of the all-important Employment Report by the Labor Department. The report showed nonfarm payroll losses of 539,000, well below a Bloomberg survey that estimated 630,000 lost jobs. In March 663,000 jobs were shed by employers. The unemployment rate climbed to 8.9%, exactly as had been predicted by economists. Since the recession began in January 2008, it is estimated that more than five million Americans have lost their jobs.

Observes were puzzled by the response of gas futures to Thursday's storage build report. "The natural gas market perplexes me quite a bit. It can go for many periods where it becomes disjointed for a long period of time. By the end of October I look for storage to be at 3.9 to 4 Tcf," a Houston analyst said.

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