Following a two-day, 25-cent price slide, natural gas futures rebounded modestly Friday as traders covered shorts ahead of the weekend and in anticipation of cooler temperatures this week. Also supportive on Friday was an up-tick in crude oil prices, which advanced 58 cents to finish at $18.03. The December natural gas contract experienced a similar bounce, gaining 8.6 cents to close at $2.637.

Most traders contacted by NGI Friday were incredulous of the diverging paths the cash and futures markets took . “I don’t know what was more unbelievable. The falloff in cash or the rebound in futures. You would have thought they were two different commodities,” a Houston trader said. Heading into trading Friday, market watchers knew that the combination of weak demand for the weekend and continued plentiful supply would pressure prices lower. However, few thought the losses would extend as deeply as they did. NGI‘s Henry Hub cash price for the weekend is $1.74, down 29 cents from Friday’s posting.

Looking ahead to this week, traders are eager to learn whether the market was able to eke out one last storage injection last week. “I cannot see any way we could see a net withdrawal,” a Midwest marketer commented. “People are doing everything they can to inject gas, park it on a pipe or hide it away somewhere. The economics just do not point to a withdrawal.”

If he is right and the American Gas Association reports another small injection when last week’s data is released Wednesday, it will be an anomaly. Last year at this time the market withdrew 94 Bcf from underground facilities and the five-year average calls for a 61 Bcf draw down. While siding with history and looking for a small withdrawal, Tim Evans of New York-based IFR Pegasus is skeptical it will do much to boost prices. “Storage for this week may result in a 10-15 Bcf withdrawal, but that will look minuscule next to the 94 Bcf comparison draw from a year ago. This won’t be an isolated event either, as huge withdrawals in November and December 2000 were a big contributing factor in sending nearby futures to as much as $10.10.”

In daily technicals, December has initial support at the confluence of Thursday’s and Friday’s lows in the $2.50-52 area. A break of that level will likely initiate sell-stops that could lead to a retest of Fibonacci projections in the $2.40 area. Because the market filled the chart gap up though the $2.635 area, it now has an upside objective at the top of the other gap from last week at $2.74. Also of technical importance, says Tom Saal of Pioneer Futures in Miami is the short-term trend resistance line off the 120-minute December chart. Accordingly, Saal is advising his customers to sell rallies until the market closes above the $2.70 level.

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