Natural gas futures had a good shot at posting another solid gain Friday but by the close of floor trading were barely able to squeak into the plus column. August futures rose by 0.1 cent to $3.669 after trading nearly 12 cents higher and September eked out a 0.3-cent gain to $3.816. All contracts past February 2010 settled lower. August crude oil posted a solid gain of $1.54 to $63.56/bbl.

“I’m kind of feeling there is no rhyme or reason as to why prices are this high,” said a New York floor trader. “Crude turns positive, we turn positive, and crude stays up, [but natural gas falters]. It’s all very weird. I think there was a lot of short-covering on Thursday.

“Natural gas may have a trading range as low as $3.20 and up to $4. There have to be buy stops above $4.00.”

Analysts see natural gas prices in a unique position. “The move down from $13.69 has pretty much officially ended and that $10 move effectively discounted all the bearish factors in the market up until now,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. He added that “it looks to me that the natural gas market has a clean slate, but it hasn’t factored in the worst of the recession. Part of me says that the market has not fully discounted the decrease in the rig count because it hasn’t resulted in lost production.”

Beutel went on to say that the oil market had effectively said “the worst is behind us” in March, but “we never really saw that in natural gas. I think we will go through a period of trying to figure out what has and has not been discounted, and it looks as though most of the bearish factors have been discounted but the bullish factors have not had their moment in the light.”

Bullish factors notwithstanding, other observers see the natural gas market as a sale. “I think new money came into the market when crude oil tested $60/bbl, traded briefly in the $59 range and held. The implied floor is $60,” said a Portland, OR-based consultant. “If you are going to make a bet [on the energy markets], you bet that there is only upside from here. Some of that flowed Thursday into natural gas.

“If natural gas gets above $4, I would be selling it all day long because that is where natural gas has been rangebound for the last month. Until something changes I would be in a position to sell. I just don’t think the demand is there yet.”

Others are also favoring the sell side of the trading ledger. “Unless the temperature forecasts are updated during the coming weekend in favor of a sustained hot spell, this market could easily relinquish the strong gains of the past couple of sessions ahead of August contract expiration later this month,” said Jim Ritterbusch of Ritterbusch and Associates last week. “For now, we suggest holding any short September positions established within the $3.60-3.65 area while suggesting stop protection above the $3.96 level. This week’s lows in August futures at the $3.22 area provide an ultimate downside target for the September contract,” he said in an afternoon note to clients.

Friday also marked the third day of the United States Natural Gas Fund’s (UNG) roll from its holdings of August Nymex contracts into September positions. The fund has doubled its net asset value since June 1, rising to $4.6 billion from $2.3 billion, and that extra clout potentially could have affected futures pricing as the fund rolls its positions into September.

But “if the roll is making an impact, I’m not seeing it,” a New York-based trader told NGI. “UNG sold August and bought September the last two days, yet the spread between those months has narrowed since Wednesday’s close. If UNG truly were having an impact right now, you should have seen the opposite thing happen.”

The numbers appear to bear this out. According to UNG’s website, the fund sold a combined 16,949 August contracts and purchased a total of 14,365 September positions on Thursday and Friday. Yet the August-September contango spread ended Friday at 14.7 cents, down 0.3 cent from the session close on Wednesday.

UNG typically begins rolling its near-month futures positions into the second month 10 to 11 trading days before the expiration of the prompt-month contract. The current August-September roll began last Wednesday and is scheduled to end on Monday.

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