Despite an impressive bounce Thursday afternoon and strongerover-the-counter trades Friday morning, natural gas futures werehit with a second day of losses Friday as locals deposited themarket lower after finding an intermediate layer of resistance at$4.16. The July and August contracts moved lower in lockstep, eachshedding 2.1 cents to finish the week at $4.043 and $4.022respectively. Estimated volume was 82,698.
Heading into Friday’s session, many traders were still a littleshell-shocked after watching prices plummet some 75 cents in just24 hours. “I didn’t know what to make of it,” said a Chicago traderwho manages his own book. “I’m long and prices just kept comingoff. I almost got out at $3.80, but now I’m glad I didn’t,” hesaid. As it turns out, the market cratered at $3.80 before climbinggingerly back above $4.00 Thursday.
“Locals were good buyers [Friday] morning,” observed Tom Saal ofMiami-based Pioneer Futures. “They were out looking for resistance.Once they ran into selling in the mid-$4.10s, they turned andbecame sellers,” he said. After reaching its $4.16 high in thefirst half-hour, the market ground steadily lower for most of thesession before retracing back above $4.00 at the close.
In addition to technical selling, sources were also quick topoint to weak cash market prices, as a negative factor. A largeutility trader decided to step into the market as a buyer whenprices drifted below $4.25 at the Chicago citygate. “We are 20cents below index,” she reasoned.
And while some would agree that weaker cash prices have cast abearish tone on the month of June, others believe the pricecorrection was only natural. “From all we can see, Thursday’s dropin natural gas futures was 100% technical in nature, with nothingfundamental about it. The market had simply exhausted its buyingpotential and had to drive some of the speculative excess back tothe sidelines to regroup and start over. The 56 Bcf in AGA storagerefills was still less than the 71 Bcf from a year ago and evenfurther from the more typical 90 Bcf injection for this time ofyear,” Pegasus said in its NatGas Report Friday.
Looking ahead at this week’s report, Saal predicts injection inthe 55-70 Bcf range. Although that will fall conspicuously short oflast year’s 91 Bcf refill, he remains price-neutral. “Storage hasalready been factored into prices. The market has come to therealization that we will not be able to match last year’s talliesand people are convinced we are in a tight supply situation.Nothing has changed. The inventory story has been played out.
“Prices will take their next cue from the weather. If we getsome extreme heat, then the market could push back to $4.50.However, if we do not get extreme heat, we could slip lower,” hesaid.
If prices slip lower, they will encounter support at $3.93 and$3.80. On the other hand, resistance is seen at $4.16 and $4.22, atechnician said.
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