Rebounding from Thursday’s heavily predicted, albeit modestsell-off, natural gas futures turned higher Friday as tradersjumped at the opportunity to increase their length while the marketwas trading off fresh highs. After opening lower and quicklymatching Thursday’s $2.75 low, the April contract rumbled 4.2 centshigher to close at $2.825, just below its $2.83 high for the dayand only pennies less than the $2.865 life-of-contract high put inThursday. Estimated volume was solid, with 53,424 contractschanging hands.

Sources agreed that a combination of technical buying along withtraders’ ability to look past bearish near-term weather to focusinstead on the anticipation of higher prices this summer was at theheart of the advance.

For Tom Saal of Miami-based Pioneer Futures, the price strengthcould be attributed, at least partially, to renewed hysteria overwhether there will be enough gas this summer. “Its back to thefuture[s]. Prices shot up last October on concerns there would notbe enough gas this winter. Now they are doing it again, only thistime it’s fear of a summer shortfall.” And although the market is along way from the $3.195 high notched on Oct. 28, Saal does notrule out a repeat but also cautions traders of the precipitous dropthat followed. “The market can come back down twice as fast as itrose,” he said.

However, in order for the prices to rise above $3.00, the marketmust get past a potential string of negative storage withdrawals,which began with last week’s 74 Bcf draw. Prior to that meagerpull, the market had produced a more than 500 Bcf year-on-yeardeficit in just five weeks. And with that 74 Bcf draw-down, storagestands at 1,194 Bcf, or 37% full versus 1,662 Bcf or more than 50%full a year ago.

According to Tim Evans of New York-based Pegasus EconometricGroup, the moderating temperatures pervading much of the countrymake it doubtful the market will be able to avoid a furthercompression of that storage shortfall. “AGA storage for this weeklast year was 69 Bcf, which might be consistent to what we’ll seein Wednesday afternoon’s report. But the week to follow features a134 Bcf withdrawal a year ago, so the general downtrend in theyear-on-year deficit should remain intact. Coupled with themarket’s moderate overbought condition, this fundamental weaknessshould result in at least a downward correction if not thedevelopment of a full-blown bear market,” he said

In order for prices to continue higher, the market will need aninfusion of fresh buying, and many feel that it will need to comefrom the non-commercial segment of the market. According to thelatest Commitments of Traders report released Friday, Feb. 25,non-commercials were net long only 10,002 positions whereas theyhave shown the ability to extend their longs to more than 50,000 onextreme bull runs. “They have probably gotten a little longer sincethat report, but considering total open interest has not movedsignificantly, I would be surprised if they had increased theirlength by much. If they decide to enter the market at this point,we could be in for quite a ride,” a Houston risk manager surmised.Open interest on March 2 was a modest 274,143 positions.

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