A spate of selling followed Thursday’s runaway 36-cent screen rise, as traders took profits ahead of the weekend and July natural gas futures sank 13.6 cents to close at $5.805 Friday. Meanwhile the 12-month strip slipped 8.4 cents to close at $5.821. At 60,140, estimated volume was weak.

Few were surprised by Friday’s price retracement, which came on the heels of some remarkable price activity Thursday. Prices in the July contract erupted for a 36-cent advance Thursday following a double dose of bullish news released by the Energy Information Administration. According to EIA estimates, 114 Bcf was injected into underground storage facilities during the week ending June 13. Expectations heading into the report had called for a 110-130 Bcf refill, giving bulls plenty of reason to bid the market higher.

However, the real bullishness came in the report’s footnote, which revealed that 11 Bcf of the 125 Bcf storage injection from the Thursday prior had been reclassified from base gas to working gas. In other words, the actual injection for the week ending June 6 was 114 Bcf.

At 1,438 Bcf, storage is now 23% below the five-year average of 1,850 Bcf and 32% below last year’s 2,123 Bcf mark. While those figures paint a bullish supply-demand picture, they are not as supportive as they were at the beginning of the injection season in April when storage supplies were a whopping 49% below the five-year average and 59% less than last year’s mark.

But given the choice of whether to side with the 342 Bcf injection over the last three weeks or the 11 Bcf reclassification, traders chose the latter and prices rallied to a high of $5.95 Thursday. Early residual buying on Friday enabled July futures to briefly top that level and post a $5.96, but selling was quick to beat prices back down.

Although its recent activity may appear to be anything but civilized, the market may actually be carving out a trading range, says Tom Saal of Commercial Brokerage Corp. in Miami. “It’s hard to be a raging bull when you have producers selling rallies around the $6.00 mark. On the downside, we have seen utility and industrial buying. In the middle, you’ve got locals and [other] professional speculators in a tug of war,” he explained.

Saal, who has been cautiously bearish for some time now, believes that the only thing holding this market up right now is the concern that there will not be enough gas in storage come March 2004. “That is what led us to these prices,” he continued. “We spiked to $12 back in late February on concerns that storage would not hold up through the month of March [2003]. That same fear is prevalent now and is being priced into the market.”

In June of 2001, storage was only modestly higher at 1,664 Bcf, yet prices were significantly lower at $3.90. From that point forward in 2001, storage continued to fill at roughly a 100 Bcf/week pace and prices continued lower. In late September of that year, prompt-month natural gas futures bottomed out at $1.76. The difference between then and now is that the market has since had a brush with extremely low storage levels, has seen what prices do in that instance, and is hedging against it happening again.

Looking ahead, Saal believes that the rich forward-carry premium available to storage operators right now will continue to induce large injections. “This scenario will continue until we reach a physical limitation. In 2001, that occurred at about the 2,000 Bcf level.”

In daily technicals, Tim Evans of IFR Pegasus in New York sees resistance at Friday’s $5.96 high, followed by a psychological barrier at $6.00. On the downside, failed resistance at $5.78 should now serve as a pivotal price level. A break lower would put renewed pressure on the $5.46 bottom from last Wednesday, Evans reported.

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