Stemming a three-day, 42.6-cent price slide, natural gas futures turned modestly higher Friday as traders covered shorts ahead of the holiday weekend. There also was the outside chance that tropical activity in the Atlantic and the Caribbean could present a threat to gas production in the Gulf of Mexico this week. The October contract gained 4.6 cents to close at $3.296. By comparison, the gains in the winter strip were larger, led by the January contract, which climbed 8.6 cents to finish back above the $4.00 mark at $4.029. At 50,980, estimated volume in the holiday-abbreviated session was weak.

Several cash traders polled by NGI Friday attributed the strength to the sudden flurry of storm activity in the tropics. “If it wasn’t for these storms in the Atlantic and Caribbean, we would be lower again today,” a Houston-based cash trader said. On Thursday morning the National Hurricane Center began tracking a tropical disturbance in the far eastern Atlantic Ocean. After reaching tropical storm status with maximum sustained winds of 65 mph Friday morning, “Dolly” had become poorly defined and weakened as of press time Friday evening with sustained winds near 60 mph. As of Friday the storm did not pose a threat to land. However, intensification was forecasted.

Also on traders’ radar screen Friday was the emergence of two tropical waves that, although closer to the Florida peninsula and the Gulf of Mexico Friday, were much less well organized than Dolly in the Atlantic.

In spite of the tropical storm outlook, there continued to exist a deep divide between fundamental and technical traders’ outlooks Friday. Assuming the storms peter out and do not have a chance to impact gas production in the Gulf of Mexico, fundamental traders believe the market will continue lower this week amid ample supply and shoulder month demand. Looking ahead at this Thursday’s release of fresh storage figures, Kyle Cooper of Salomon Smith Barney calls for an injection in the upper 60s Bcf, which would exceed last week’s 59 Bcf refill, but fall short of last year’s 76 Bcf addition.

However, Tom Saal of Pioneer Futures in Miami is not convinced that lower prices are in store for this market. “We [just experienced] one of the lowest demand weekends of the year and the futures market registered a gain. These are the lowest cash prices we should see for a while.”

Saal went on by pointing to some undeniably bullish technical factors visible on a monthly continuation chart. “[This month] the market has put in a new low for the move, notched an outside bar, and closed above the prior three end-of-month closes. That is what you call a textbook reversal bottom,” he said.

And while the market may be overpriced from a fundamental standpoint, “that’s OK,” continued Saal, who believes it will be the non-commercial segment of the market that steps up on the buy side. “If I can see a textbook bottom, then so can a commodity fund manager. We have rallied $1.00 in the last two weeks and during that time the non-commercials have covered their short positions. Now that we are above the 40-day moving average, I would not be surprised if they pressed the long side now.”

According to the latest Commitments of Traders Report released Friday by the Commodity Futures Traders Commission, non-commercial concerns decreased their net short positions by nearly 14,000 to 5,446 contracts over the week ending Aug. 27. The last time they were liquidating shorts in this fashion was back in March, which preceded the market’s advance to $3.97 in May.

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