In a delayed reaction to bearish storage data released Thursday that revealed the first net refill of the 2003 injection season, natural gas futures dipped lower Friday as commercial traders continued to liquidate their long positions. Not even double-digit rises in physical market prices could support May futures, which lacked originality by closing at the same price — $5.146 — as the final expiration of the April contract Thursday. At 44,630, estimated volume was extremely light ahead of the weekend.

After initially falling following the 7 Bcf storage injection report Thursday, the futures market confounded most market watchers by posting a gain in the expiration-day session. However, all was well by Friday afternoon. By slipping 9.4 cents in lackluster trade, the May contract rescinded Thursday’s advance and dipped back below its $5.148 close from the previous Friday.

Heading into last Thursday’s storage report, the market was mixed as to whether the data would reveal a withdrawal or an injection. On one side of the argument was that never in the nearly 10-year history of storage data had the market notched an injection so early in the refill season. Add to that the fact that the economics last week were not unquestionably in support of storage injections. “Something has to give,” a cash trader said in reference to the nickel differential separating successive months in the Nymex strip. “There is not that much incentive to inject gas into the ground. Either the front of the market needs to fall lower or the back end has to rise up.”

However, in the end economics and recent history could not compete with the severe inventory shortage — at 636 Bcf, storage was at record low levels for the week ending March 14. The Energy Information Administration’s report of a 7 Bcf addition for the week ending March 21 brought stocks up to the 643 Bcf level.

Though not surprised by the slim forward-carry premium in the market right now, Tom Saal, of Miami-based Commercial Brokerage Corp., believes it will increase as storage injections continue. “The simple fact is that we will inject gas into the ground, and as we do the market will exhibit an increasing amount of contango…. To take advantage of this simple fact, you could buy October and sell June.”

And while it may be a safe bet that October will increase vis-a-vis the June contract, it is a little harder to predict the outright direction of the May contract. “The market has been held up by commercial traders buying back the shorts they initiated on the rally to $11.899,” continued Saal. “I would expect non-commercial traders to try the short side here and that could propel the May contract lower… At some point, however, industrial and other end-use buyers will commence to buy and that should stop the downward momentum.”

In daily technicals, May futures have some key levels. Since crashing down to the $5.00 level following its brief foray higher late this winter, the market has equilibrated in the low to mid-$5.00s area. On the downside, support is viewed at the confluence of the psychologically important $5.00 level and last week’s low at $5.03. On the upside, selling is seen in conjunction with last week’s high of $5.35. A break higher could put pressure on the March 20 spike’s high at $5.55.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.