After gapping 4 cents lower on the open Thursday, the May HenryHub futures contract quickly prompted eager buying as locals andfunds jumped in to take advantage of the downturn. The contractjumped all the way to a new three-month high of $2.090 beforeprofit-taking triggered a sharp retracement. May ended Thursday’sregular session up 2.5 cents from Wednesday’s close.

The National Weather Service’s six- to 10-day forecast of abovenormal temperatures for most of the country except the PacificRegion, and the American Gas Association’s relatively bearishstorage report were blamed for the initial weakness. The reportedstorage withdrawal of only 37 Bcf, still leaves a surplus of 329Bcf compared with levels at the same time last year. But someobservers are looking beyond the overhang to the addition ofstorage injections, however small, into the gas demand equation.

“There continues to be a strong interest in buying the summermonths and selling the winter months in order to hedge storagerefills,” said Tom Saal of Miami-based Pioneer Futures. And inaddition to storage buying, Saal also is optimistic on prices fortechnical reasons. “This market is making higher highs and higherlows, which shows that the buyers are becoming more aggressive. Wehave 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 prettyfast the market was due for a correction.

Looking ahead to this week, Saal sees continued buying strengthled by locals and funds to drive prices higher. “$2.10-13 is thenext level of congestion on the continuation chart. Above thatlevel, $2.17 represents downtrend resistance on the weekly chart,”he said.

For long-term fundamental support, the market might look to the50% decline in drilling activity to date this year compared to 1998and the corresponding decline in gas deliverability. With normalsummer temperatures and strong demand for gas from electricgenerators, the heavy storage surplus could be depleted ratherquickly, some observers, such as Ronald Barone of PaineWebber,maintain.

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