After slipping more than a dime Thursday, the futures marketcontinued lower Friday morning as traders continued the process oflightening their long positions. The July contract carved out a$2.325 low before 11 AM. That, however, was about all the sellingpressure the market would tolerate and scaled down trade buyinglifted the market throughout the rest of the day. July finished at$2.378, up 2.3 cents. Estimated volume was light, with only 45,070contracts changing hands.

“A rejection of the follow-through lower,” is how one traderdescribed the market’s inability to tack on additional losses afterbreaking through and settling below significant support at $2.36Thursday. However, he remains skeptical of further gains. “Storageis 52% full with 21 weeks left in the injection cycle. Injectionsonly need to average 69 bcf over that period in order for themarket to enter the winter with a full 3.2 Tcf in the ground.” Hewent on to dismiss the notion that supply is down. “Despite the hotweather we have had this week, cash prices have maintained adiscount to the futures screen. That means that not only is currentsupply enough to meet current demand, but also enough to satisfystorage players who have an obvious incentive to arbitrage the[June cash versus July futures] spread.” According to Houston-basedBaker Hughes, the U.S. rotary rig count as of June 11, was 547,down 8 from the week prior and 321 less than year ago figures.

On the other hand, a Gulf Coast trader believes a lot can belearned by looking at the Nymex open interest figure, which notcheda new all-time high of 344,889 Thursday before retreating back to339,681 on Friday. “It shows there was fresh buying Wednesday onthe move up to $2.47 ahead of the storage report. That buying, hecontinued, quickly turned to selling in Wednesday evening’s Accesssession and continued on Thursday.” Analysts and traders agree thata falling market and decreasing open interest signal longliquidation while a falling market and increasing open interestusually mean fresh selling was entering the market.

Of the types of selling, Ed Kennedy of Miami-based PioneerFutures feels long liquidation is more benign and should not betaken as seriously as fresh selling. Will the market trend lowernow that open interest has hit a record high? Not necessarily, saysKennedy. “Utilities are becoming more active in the market therebyincreasing the amount of trading activity and open interest. Ifnatural gas futures market was more mature, like for example the [S& P 500] futures, then you could make the argument that openinterest has a ceiling. Looking ahead Kennedy looks for the bullsto regroup today for a retest of the $2.40 level.

“Just another typical Friday,” joked a Southeast trader whofound it odd that futures prices have moved higher despite fallingcash market prices the past two Fridays. “Today’s run-up was due toshort-covering ahead of the weekend mixed in with some early seasonhurricane-hype,” he said. That’s right, the North AtlanticHurricane Season kicked off on June 1, and it already has its firstcontestant. As 5 PM Friday, Tropical depression one was located 540miles off the Southeast coast of Bermuda and forecast to strengtheninto a tropical storm by today.

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