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Futures Stabilize After 3-Day Price Rout

Futures Stabilize After 3-Day Price Rout

Despite warming temperatures that already had begun the process of melting snows from Monday's Nor'easter, the futures market was able to arrest a further meltdown of its own Tuesday as buyers and sellers were evenly matched. In fact, Tuesday's price action was so orderly, that not only did the market etch an inside day with highs and lows within Monday's, but also posted an identical $1.717 settlement price. And although some bulls were somewhat reluctant to claim the day as a victory, others viewed the market's ability to hold ground following the 25-cent price slide since last Wednesday as promising.

However, a Houston marketer thinks that the truth to the futures puzzle lies, at least for the moment, in cash prices. "Now that the shorts have been squeezed out of the market, it will take a fundamental event to push the market in one direction or the other." He feels that pressure will be downward and could come as early as today. "Weather is moderating substantially and utilities are turning back volumes. [Cash] prices finished the day at their lows [Tuesday], that does not bode well for prices [Wednesday]," he continued.

And Tom Saal of Miami-based Pioneer futures agrees that the funds, presumably holding little or no positions, will remain on the sidelines until a clearer trend develops. "If we are to see any volatility, it will be the commercials who provide it." But Saal remains bullish despite the recent losses and points to storage injections as the market's salvation. "Bears keep focusing on the relatively high storage level, but that is yesterday's news-looking forward is what the futures market is about. We have about 1.5 Tcf worth of injections that will start to go into the ground in two weeks -- much of which will be hedged using the futures market. People will buy the summer [months] and sell the winter [months] in order to lock in their cost of carry. That should support and eventually put upward pressure on the market in the weeks to come."

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