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Futures Finish Strong on Late Rally

Futures Finish Strong on Late Rally

It was a tale of two markets Friday at the New York Mercantile Exchange. Softer cash market prices helped push futures prices lower early in the trading session. Those losses, however, were quickly erased in the afternoon as traders weighed the impact of forecasts calling for warming temperatures this week. The July contract finished at $2.437, 4 cents higher for the day and 7.9 cents for the week.

Traders agreed slackened weekend demand for physical purchases gave the market its early downward direction. But whereas the cash market was unable to climb out of its early price dip Friday morning, the futures market was able to notch a $2.44 high just before the close.

Minutes after the close, the National Weather Service confirmed the speculation of warmer temperatures this week. The six- to 10-day forecast calls for above-normal temperatures across the entire Northeast, extending across the upper Midwest all the way to eastern Montana, Wyoming and Colorado. Within that large swath of above-normal readings, the NWS expects to see much above normal readings from the Dakotas to Lake Michigan.

The Pegasus Econometric Group of New York feels that warmer weather will continue to keep storage injections lean and the market well bid. However, the group warns the amount of potential buying may be waning. They cite the 326,099 in open interest as of last Wednesday versus the 347,561 all time high from April 26. "As the total approaches that level, the amount of potential fresh buying will shrink, making further gains dependent on commercial short-covering, which may be difficult to trigger," the group wrote in its Power Report dated June 2.

Susannah Hardesty of Energy Research and Trading in Indiana, on the other hand, remains unflinchingly bullish on technicals, weather, storage concerns and fund buying. "Current estimates would indicate that the highest peak of the Spring high could be as high as $2.600 to $2.900 for the first futures contract, if bullish weather patterns prevail as expected during the first half of June, injections continue to be disappointing, the trend appears to be in that direction, and speculative trading funds continue to be strong buyers." Hardesty's target for this high is between June 7 and June 25.

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