Natural gas futures bulls tried to capitalize on Thursday’s momentum in early Friday trade by pushing the July contract north of $4.100, but profit-takers had other ideas as the prompt-month contract reversed course in a hurry to close the day’s regular session at $3.835, down 12.2 cents from Thursday’s finish.

Following Thursday’s 31.9-cent gain sparked by a bullish storage report and support from the neighboring crude futures market, July natural gas reached a high of $4.104 just before 9:30 a.m. EDT. However, faced with its own bearish fundamentals, the contract turned lower, recording a low of $3.798 just prior to the regular session’s close.

“Natural gas started Friday off pretty strongly as it ran up above $4.100 in sympathy with the rising oil and equities prices, but the fact is the gas market fundamentals are really like dead weight,” said Gene McGillian, a broker at Tradition Energy. “As the afternoon wore on, people who had been long earlier in the week decided to take some profits ahead of the weekend. As we slumped back below $4, it looked like the liquidation selling kind of picked up and we got down below $3.800.”

McGillian noted that futures are going to start June trading right in the middle of May’s trading range. “There definitely is a pattern here,” he said. “It seems natural gas tries to follow along with the broader energy complex and the financial markets as they move higher. This lasts for a while until the real situation enters in and the gas market comes tumbling back down. I think we will see more of this pattern ahead, especially because we are not hearing any kind of indications that we are going to see any sizeable cooling demand needs coming up in the next few weeks, other than maybe Texas and the lower Mississippi Valley. In addition, there are reports that we are going to see triple-digit storage injections over the next three weeks. If the economy is recovering, I don’t think it has picked up markedly enough to think that industrial demand will turn around significantly.”

Noting that Baker Hughes reported Friday that another eight natural gas-seeking rigs were taken off-line in the United States during the week (see related story), McGillian said the promise of reduced supply that everyone is talking about is kind of like the “rain cloud on the horizon.” The “bulls keep saying a rally is coming because supplies will be curtailed in the coming months, the economy is recovering and industrial demand will return. I don’t think we are significantly close to any of those things happening over the next two to four weeks of trading.”

Commenting on the wild swings of the last two days of the week, the broker said he believes natural gas has always been the most volatile of the energy markets. “The battle between the current overhanging fundamental picture and what is expected to happen towards the end of the year is going to be fought out over the next couple of months until we get near the end of the hurricane season,” McGillian said. “I think the fear premium is going to help the bull side of the market and we are going to see prices firm up on hurricane concerns. I don’t think that factors in until at least July. Until then, I think the volatility is going to be pretty scary. It is going to be just a matter of whether the oil and equity markets continue to provide the underlying support. Without that support, I can’t see too much of a rally in the next four weeks.”

July crude on Friday continued to soar. The contract picked up another $1.23 to close at $66.31/bbl.

Looking at Thursday’s meteoric day for gas futures, some market experts were left scratching their heads. One analyst noted that the 31.9-cent advance did not square with inventories that are more than 20% higher than the five-year average. “To the extent that further expansion in this surplus is expected through next month, we are questioning the validity of this month-end price spike as we view it as but another bear market correction,” said Jim Ritterbusch of Ritterbusch and Associates.

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