The April gas futures contract managed a minor gain Friday of8.4 cents to end the regular trading session at $5.270/MMBtu andclose a relatively quiet week on a somewhat sleepy note. For thetime being, the April contract appears essentially dormant within atrading range between $5.06, which was the low trade for April setlast Tuesday, and Wednesday’s high of $5.385, which was the initialreaction high after the AGA storage data was released.

A late collapse after the AGA storage report of 101 Bcfwithdrawal on Wednesday confused the bulls last week. “It reallydampened our enthusiasm for an immediate rally but I think theintermediate term outlook is essentially supportive,” said onefutures analyst.

Susannah Hardesty of Energy Research & Trading agreed. “Idon’t know why prices softened after the AGA report,” she said.”However this doesn’t change my recommendation to buy 25%requirements through September/October 2001 and preferably throughJanuary/February 2002. Prices are still in a sideways congestionphase…. Given the weather forecasts, I don’t think it’s likelyfor natural gas prices to drop below $5.00 and highly unlikely forprices to hit their maximum downside of $4.30.”

The latest National Weather Service forecasts call for belownormal temperatures over much of the U.S., particularly the West,Mid-Atlantic and Southeast. There is a small area of above normaltemperatures forecast for the upper Midwest. Normal temperaturesare expected across the remainder of the country.

Another potentially bullish indicator is the year-to-yearstorage comparison going forward. Last year’s withdrawals will bemuch smaller than this year’s over the next couple weeks. Thecomparable figure last week was the 74 Bcf withdrawal for the sameweek in 2000, but the next one is 37 Bcf and the one after that is31 Bcf. “We should be able to beat those levels pretty muchstanding on our heads, maybe even double them,” said Tim Evans ofPegasus Natgas Report.

The reported withdrawal last week increased the storage deficitfor the first time in six weeks. At 859 Bcf, working gas levels arecurrently 26% full, 335 Bcf less than the same time last year and378 Bcf less than the five-year average, which is 1,237 Bcf. The101 Bcf draw reported last week was 27 Bcf more than during thesame week last year and 20 Bcf more than the five-year average.

“What you are going to see over the next three weeks is anuptrend in the size of the storage deficit,” Evans said. “Thatmight not cause a stampeding back to the up side but I thinkthere’s room for a decent sized upward correction here.”

The price of gas essentially has been cut in half over the pasttwo months. In December, futures hit a peak of $10.10, the all-timehigh trade and the expiring March contract fell to a low of $4.94.Any retracement to the upside could cover $1, according to someobservers.

Technical retracements off the $6.94 life-of-contract high forthe April contract set Jan. 10, leave $5.78, $6 and $6.22 assignificant targets.

For George Leide of New York-based Rafferty Energy Group, thesell-off last Wednesday afternoon was not too much of a concern.”As long as April can stay above $4.98, this market should quietlydevelop higher.” However, Leide believes you have to be long atthese levels with a protective sell stop placed at $4.95 to limitthe downside risk. “This is not going to be a home run trade and wearen’t going to see a quick move to the upside. Winter is off theboard and with it went some volatility. We are seeing some goodbuying in July and August and as long as support holds in April,this market should work its way higher,” he continued.

Gradual decreases in volatility prompted Nymex to lower marginson Friday. “I don’t know that the speculators are so keen onrunning back in here,” noted one commercial trader. “Even on thecommercial side of the business, we’re not necessarily close to thesilly season yet — the part of the year when we tend to price insummer cooling demand and any hurricane threat. This year the longrange forecasts are for below average hurricane activity, so that’sprobably not going to be the focus here,” he noted. “Gas-firedgeneration is going to be the focus and I think you will hearsomebody at some point say ‘Gee, I don’t know but I think it mightbe a hotter than normal summer.’ That can be enough of a worry toget on this market’s last good nerve. But we’re not there yet.”

©Copyright 2001 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.