Capping a wild week of trading that saw a new all-time prompt month high and settle, January natural gas futures recorded their third consecutive down day Friday, stamping the week’s overall trend as weak. The prompt month Friday closed out the week at $13.633, down 14.8 cents on the day and 67.9 cents lower than the previous Friday’s close.

After gapping lower to open at $13.500 on Friday, January natural gas found support almost immediately at $13.460, ticking higher from there. In the last half hour of trading, the contract hit the day’s high of $13.750 before settling a little more than a dime lower.

Following Tuesday’s all-time high prompt month settle at $15.378, the last three regular sessions of the week for January futures marked a $1.745 drop. Some traders said an “island top” might have been put in during the week. The market gapped higher on Tuesday and then gapped lower on Wednesday, leaving Tuesday’s trade action unconnected, which is a bearish chart formation.

Following the hectic week of ups and down, traders for the most part took Friday off, as evidenced by the day’s low volume of 51,911 contracts exchanging hands.

“It really seemed like traders were taking a breather Friday following the radical moves during the week,” said Tom Saal of Commercial Brokerage Corp. in Miami. “We started out lower Friday and kind of grinded higher over the course of the day. The action Friday wasn’t a very strong indication…it didn’t really confirm anything. It was a neutral day. On Monday, we could go a little lower or end up rallying.”

Speaking prior to the release of the Commodity Futures Trading Commission’s (CFTC) Commitments of Traders report, Saal said the report should be revealing. “If the funds are still short, then we probably have another rally in this thing. If the funds are net long, then that island high from Tuesday might have been a high.”

The CFTC reported Friday afternoon that noncommercial accounts reduced their positions of net short (futures only) contracts substantially for the reporting period ended Dec. 13 from 38,883 contracts the previous week to 29,026 net short futures contracts. Over the last two weeks, noncommercial traders have reduced their net short futures positions by 21,155 contracts.

While Tuesday’s run to new highs was groundbreaking, Thursday’s price collapse in light of the release of bullish supply data was most peculiar. Some market insiders said Thursday’s action underscores the degree to which a market can get “overanticipated” and often the most bullish moments are opportune points to sell. The EIA released inventory data that showed withdrawals from natural gas inventories at a hefty 202 Bcf, well above industry expectations in the 170 Bcf area.

The market’s initial reaction was positive, but wily floor traders realized that $14 natural gas futures were little more than a market that had gotten ahead, if not way ahead, of itself. “Traders bid the market up 70 cents and then pulled the rug out from under it,” mused a New York floor trader. He added that there was some modest short-covering once the number came out, but below $14.500 the market was a house of cards. “It went from $14.500 to $14.200 in a heartbeat.”

The trader said he expects prices to drop to around $12.700 as the market sorts itself out. “I think there was a lot of weak length in the market and no one was expecting such a correction,” he said. He added that there was a good mix of local, trade, commercial and fund activity Thursday. “The funds were doing some good selling [Thursday afternoon], and I think they will continue to sell,” he said.

The market may be dealing with the cold weather supply dynamic for at least another month. Thursday AccuWeather released its January forecast of both temperature and precipitation. The temperature forecast shows colder-than-normal weather in the East and milder-than-normal weather in the West. “Nationwide, it will be a relatively dry month,” the State College, PA-based forecasting firm said. “The reasoning behind that is that the flow will be out of central Canada much of the time.”

This orientation of the jet stream carries Alberta Clipper storms southeastward, and sometimes they strengthen right along the Atlantic Seaboard. For that reason, near- to above-normal precipitation is shown in the East, AccuWeather said.

©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.