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,"
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,
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