Not extended heat or Tropical Storm (TS) Bonnie or a bullish storage injection could prop up natural gas futures prices on Friday as the August contract traded in a tight 10-cent range before closing the day's regular session at $4.580, down 6.3 cents from Thursday's finish.

While the market declined in the face of such bullish fundamentals on Friday, market bulls were able to take some solace in the fact that the August contract closed out the week 6.1 cents higher than the previous week. Some analysts were quick to point out the week-on-week gain, but noted that the present price level remains vulnerable.

"Although the market has been able to maintain the strong gains of [the previous week] with the help of storm concerns and warm temperatures, these factors are susceptible to a reversal at any time," said Jim Ritterbusch of Ritterbusch and Associates. He added that "should TS Bonnie fail to impact offshore drilling activities amidst a possible swing toward temperature moderation, this market could still drop back down into the $4.30-4.40 zone next week as the funds reestablish short positions that may have been covered during the past week."

Although August futures tacked on 13 cents to settle at $4.643 Thursday, short-term traders were not impressed. "It's still basically a sideways to down market," said a New York floor trader. "I would think there are a number of sell orders at higher levels. Some unsophisticated shorts probably got spooked by the weather in the Gulf [of Campeche], which is basically going to be a rainstorm and nothing much after that. Realistically, we haven't had a storm since Katrina."

As of Friday afternoon, TS Bonnie was in no danger of being mistaken for Hurricane Katrina. Bonnie, which made landfall Friday between Key Largo and Miami, FL, as a minimal tropical storm, was "relatively poorly organized" and mostly "squally showers and thunderstorms," said Alex Sosnowski, expert senior meteorologist with AccuWeather.com.

AccuWeather.com meteorologists expected Bonnie's strength to fluctuate between tropical depression and tropical storm status through Saturday as it moved over the eastern Gulf of Mexico, turning more to the northwest and eventually the north.

Despite Bonnie's relative weakness, producers were evacuating personnel and shutting in production in the Gulf (see related story). According to a Bureau of Ocean Energy Management, Regulation and Enforcement update, it was estimated that approximately 10.42%, or 0.67 Bcf/d, of the 6.4 Bcf/d in gas production in the Gulf had been shut in. The storm also forced BP to suspend its relief well drilling targeting its blownout Macondo well (see related story).

Credit Suisse analyst Teri Viswanath said some of the bullish confidence has been shaken. "In our comment issued earlier in the week, we suggested that U.S. natural gas prices would likely move higher as market sentiment reverted back to a 'glass half-empty' view on end-of-season storage levels," she said. "However, we're not convinced that prices won't test lower in upcoming weeks. The fact remains that the industry has successfully refilled within -3% of last year's storage levels even as cumulative cooling degrees have risen 23% season to date. We expect that, unless supply is choked back, the pace of injections will likely significantly pick up as the heat index drops."

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