After four straight days of declines — a total drop of $1.26 — April futures may have begun to stage a reversal on Friday, moving up 14.9 cents to $6.993 on some short covering and additional buying interest. The daily high Friday was $7.110 and the low was $6.870. The increase was just enough to prolong the uncertainty and to keep the record highs of two weeks ago fresh in traders’ minds.

“The move back over $7.00 gives April futures a firmer tone, although it will have to bust through Thursday’s $7.20 Access high in order to confirm the short-term upward reversal in our view,” said Tim Evans of IFR Pegasus. He said the $7.55 high from last Tuesday will be the next important level, with “gains above that suggesting a credible threat to the $8.00 barrier.”

George Leide of Rafferty Energy Group said new volumes came to the market Friday along with some short covering after April failed to fall through $6.69 on Thursday. “We filled the [continuation] gap yesterday down at $6.70 with no follow-through, but we haven’t gotten above any significant numbers on this rally, so right now we are going through some consolidation and it’s kind of flat.”

However, Leide believes the market needs to work lower and build a stronger base. “We’re waiting to resell the market on rallies. We believe the market is going to trade down to the $6-6.10 zone while that island reversal is in place up above the market at $7.95; the market would have to trade above that to negate that bearish formation.”

He said a major uptrend line is at $6.10, and $6.07 was where there were a couple of daily highs on the continuation chart. “It’s a logical retracement level.

“Once we break $6.70, we think there will be another leg coming down to the low $6.00 area,” said Leide. “I’d rather be short than long here, but I would want to have some selling power if we got up closer to the $7.30-40 range. On Monday anything can happen. If we don’t go into Iraq — the crude market put in about 80 cents to the upside today — or set a date, crude will probably come off Sunday night and I would guess that gas might pull back also.”

Leide isn’t totally giving up on a reversal here. He noted that the market is very thin and extremely volatile. Many traders have stepped to the sidelines since March futures sailed into the stratosphere with the new all-time high of $11.899 on the morning of Feb. 25.

“One of the scenarios that could play out is a rally, and we are not totally counting out the bull market,” said Leide. “But we think we are in for more of a retracement.”

He and other sources noted that the fundamentals may be somewhat at odds in the near term with continuing large storage withdrawals at a time of increasingly warmer temperatures. However, the extremely low storage level probably will keep the net fundamental impact in the bulls’ favor.

With the EIA’s latest report of a 176 Bcf weekly withdrawal during the week ending Feb. 28, working gas levels stand only 141 Bcf above the record low of 697 Bcf set in April 1996, and there still are at least four weeks left in the traditional storage withdrawal season. Working gas levels in the key East region are at 403 Bcf, which is 118 Bcf above the record low of 285 Bcf also set in April 1996.

With storage likely to reach record lows this winter and a 41% (more than 50,000 MW) increase in gas-fired combined cycle power generation this year, observers see little room for market weakness over the long term.

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