Buoyed by renewed storm fears and bargain buying followingThursday’s 6% price slide, natural gas futures were higher Friday,leaving traders to speculate as to whether the downward pricecorrection is complete. November received the largest boost of anymonth, recovering 6.2 cents to close at $5.186. The winter strip,followed suit, gaining a nickel to close at $5.105.

Traders were quick to point to the formation of Tropical StormKeith in the northwestern Caribbean as a supportive factor Friday.As of press time, the storm was located about 300 miles south ofthe western tip of Cuba and featured maximum sustained winds near50 mph.

Whether Keith will impact production in the Gulf of Mexicoremains to be seen, but one thing is for sure — the market hasbeen quick to react to the upside each time the threat of a stormpresents itself. And while the buy-the-rumor trading phenomenon isnot uncommon for the natural gas market, it has never had as muchof an impact as it has this year, traders agree.

Moreover, traders have viewed the market’s uncanny ability topress higher without a subsequent move lower over the past severalmonths with a great deal of trepidation. Those concerns werevalidated Thursday when the November contract spiraled 32.3 centslower on its first day as prompt month. While most traders werestill a bit shell-shocked Friday, a Chicago trader was back on thesidelines after having made a quick nickel on the market’s bounce.

“I wanted to buy at $5.30 and then at $5.20 as the market movedlower Thursday, but I chickened out both times. It wasn’t until themarket touched $5.10 that I pulled the trigger. As it turns out,that was a good move because the market didn’t move much lower andthen bounced higher in Access [Thursday] night. I ended up taking afive-cent profit at $5.15 today rather than risking another movelower Monday.”

However, not everyone was so fortunate. A basis trader for alarge Houston-based marketing company said that following thesell-off, they were warned by their internal futures gurus to treatthis market with respect. “Wish they had told me that a few daysago,” he lamented.

On balance, however, traders believe that the market will pick upwhere it left off and continue higher as long as the fundamentalsremain bullish. According to Salomon Smith Barney energy analystRobert Morris, storage levels are on course to enter the winter closeto 2,600 Bcf compared to roughly 3,000 Bcf last year (see related story). On the demand side of theprice equation, traders are eager to see if preliminary weatherforecasts calling for a normal (and therefore colder than the pastthree) winter, ring true. Prominent industry weatherman, Jon Davisalso with SSB, will release his winter forecast to his clients inabout two weeks.

In the meantime, traders will focus increasing attention on theNational Weather Service’s six- to 10-day forecast, released threetimes a week. On Friday, that report was more bullish than bearishas it called for a large swath of below normal temperatures fromthe Great Lakes west across the northern Plains states.

In daily November technicals, support is seen at Thursday’s$5.10 low and then again at trendline support in the $5.05 area. Onthe upside, resistance stands at the chart gap at $5.395-400 aheadof November’s life-of-contract high of $5.565.

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