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Nymex Fall-Off Tempers Bullish Euphoria

Nymex Fall-Off Tempers Bullish Euphoria

It has been a good spring for bull traders at Nymex. Since February 26, the now-spot June contract has rallied nearly 70 cents to trade as high as $2.40 last week. But just as constructive technicals and low storage injection figures seemed to point to continued strength, the market spiraled lower Thursday and Friday. And while long liquidation spurred by the bearish one-two combo of nuclear units coming back on line and moderating temperatures across the country were as good as reasons as any for the market turning lower, traders remain divided as to the price direction heading into the summer. June finished the week mixed at $2.273, 2 pennies above its close from the prior Friday, but 2.2 cents lower for the day.

A Chicago marketer was surprised by the market's ability to trend lower into the weekend, despite the low storage injection. However, he feels that the real test will come this week, when the refill will be compared to the 100 Bcf seen last year. "I look for another small number-maybe 40 or 50 Bcf-to really put the wheels in motion. It will be hard for the market to continue lower if we can't inject even half as much gas as we did last year."

However, Tom Saal of Miami-based Pioneer Futures takes the opposing view on the storage situation. Increased pipeline capacity to Midwest, he argues, has diminished somewhat the need for storage supplies as a safety net. "What it means there is not as great a necessity for people to buy gas today for future use. That translates into less demand for storage injection gas this summer." He added that the decrease in demand should help to offset, at least in part, the expected decreases in deliverability, which some analysts predict will be on the order of 3-5%.

Looking ahead, Wednesday's storage report will not be the only market data talked about this week when market participants meet in Dallas for the annual industry trade show. Growing long positions held by non-commercial traders as evidenced by Friday's Commitments of Traders report (see table) will undoubtedly be a hot topic. The Commodity Futures Trading Comission (CFTC) reported that non-commercial traders or "speculators" had increased their net long holdings to a record 48,029. Because non-commercial traders cannot take delivery, market watchers are begining to wonder when and how fast they will sell-off those long positions.

In order for June to move much lower, it will need to break below support at $2.205, a chartist said. Resistance hangs at prior highs of $2.405, he added.

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