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Initial Plunge Left Far Behind as April Gains 2.5 Cents

Initial Plunge Left Far Behind as April Gains 2.5 Cents

After gapping 4 cents lower on the open Thursday, the May Henry Hub futures contract quickly prompted eager buying as locals and funds jumped in to take advantage of the downturn. The contract jumped all the way to a new three-month high of $2.090 before profit-taking triggered a sharp retracement. May ended Thursday's regular session up 2.5 cents from Wednesday's close.

The National Weather Service's six- to 10-day forecast of above normal temperatures for most of the country except the Pacific Region, and the American Gas Association's relatively bearish storage report were blamed for the initial weakness. The reported storage withdrawal of only 37 Bcf, still leaves a surplus of 329 Bcf compared with levels at the same time last year. But some observers are looking beyond the overhang to the addition of storage injections, however small, into the gas demand equation.

"There continues to be a strong interest in buying the summer months and selling the winter months in order to hedge storage refills," said Tom Saal of Miami-based Pioneer Futures. And in addition to storage buying, Saal also is optimistic on prices for technical reasons. "This market is making higher highs and higher lows, which shows that the buyers are becoming more aggressive. We have not seen this eagerness to buy above support in months."

But what about the price-dip into the mid-$1.90s Thursday? Encouraging, maintains Saal, adding that after moving up pretty fast the market was due for a correction.

Looking ahead to this week, Saal sees continued buying strength led by locals and funds to drive prices higher. "$2.10-13 is the next level of congestion on the continuation chart. Above that level, $2.17 represents downtrend resistance on the weekly chart," he said.

For long-term fundamental support, the market might look to the 50% decline in drilling activity to date this year compared to 1998 and the corresponding decline in gas deliverability. With normal summer temperatures and strong demand for gas from electric generators, the heavy storage surplus could be depleted rather quickly, some observers, such as Ronald Barone of PaineWebber, maintain.

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