After tumbling $3.42 from their $8.50 high on Feb. 28 with only one up-day, April futures finally found a bottom at $5.08 and bounced higher. The contract appeared to be headed for another large drop on Friday morning, opening the day with a sharp move to the downside. But at about 10:40 a.m. buying suddenly kicked in on oversold conditions and by the end of the day, April was up 6.9 cents at $5.430, not far from its daily high of $5.480.

John Pringle of GSC Energy in Atlanta noted that after losing $1.50 this week and being extremely oversold, April futures were wound down tight and poised for a correction. “It got really oversold on the open and the funds cranked it down to $5.08-10, and that’s where it found support and bounced back. Then the funds came in again at about $5.30 and moved it up to $5.455. On Friday, nobody is going to go home short in this market so you are going to see a lot of short covering by locals too.”

Nymex local Eric Bolling (RBI in the futures pit) said locals knew something was strange when the front months were holding their spreads to the summer months. “The market just fell out of bed this morning. Obviously crude was lower. But the interesting thing was that at the lows every spread was bid to the front; they were still buying April and selling June, July and August. There was no month with the exception of April or May that was getting hit.” The April-May spread ended the day flat at $5.43 but the May-June spread ended at -7 cents with June at $5.36.

“Normally when the market falls out of bed the way it did the spreads would get very weak to the front, but it didn’t happen this time, and sure enough when the selling dried up everyone was kind of looking at each other saying ‘Now what?’ And then they started falling over each other to cover some shorts,” Bolling said.

Both Bolling and Pringle said they are expecting additional gains on Monday. “It feels like this thing could go up further from here,” said Bolling. “When the spreads are getting wider, that usually tips me off that we are going to see some strength at least for the next few days. It caught a lot of people short. I’m a bull. I think there’s a fundamental problem here with storage.”

He noted that despite the weak economy, gas storage levels are likely to reach record lows with Thursday’s EIA storage report. The 117 Bcf withdrawal for the week ending March 7 was on the low side of expectations but it was significantly larger than the 91 Bcf withdrawal from last year and the 63 Bcf five-year average for the same week in March. The EIA said that as of March 7 there was 721 Bcf of working gas in storage, 1,007 Bcf less than the same time last year and 655 Bcf less than the five-year average.

Working gas levels currently are 56% below the five-year average in the East, 52% less than the five-year average in the Producing region and 5% below the five-year average in the West. In total, working gas levels are only 24 Bcf higher than the record low of 697 Bcf set on April 12, 1996, according to EIA data.

Over the last five years, working gas levels have fallen an average of 60 Bcf over the last three or four weeks of the withdrawal season (last year there was a net withdrawal in the first week of April). That means the market probably can expect a record low level of working gas with either the next weekly storage report or the report on March 27.

“If they don’t figure a way to fix this supply problem, we are going to have a summer problem and we may end up having a problem next winter,” said Bolling. “I don’t think $5 is a high price right now. We also are way oversold.”

While Pringle predicted there would be some additional short-term movement to the upside, he’s betting the current blast of warm weather will eventually send prices below $5. “We might get one more push up, but I wouldn’t buy anything here. I think we’ll get back to $5.10-15 pretty quick. We definitely had completely inflated prices to the point that people were kind of fooled into thinking that $6.50 gas was cheap. Finally this weather forecast really tanked it. I don’t think we’ll see $6 again. I think that we could see $4.”

The funds, however, are back to a 6,284 net long exposure from about 32,994 net long on Feb. 11, according to the Commodity Futures Trading Commission’s Commitment of Traders report on Friday. That should limit the downward market pressure from further long liquidation in the near term, according to Tim Evans of IFR Pegasus. Evans believes the market has finally lost its downward momentum and could test failed uptrend support at $5.84.

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