A day after dropping 28.2 cents, natural gas futures staged a rally on Friday, with traders pushing the June contract to a high of $10.785 before it finished the session at $10.777, up 21.6 cents from Thursday, but 32.4 cents lower than the contract’s close a week earlier. The May contract expired April 28 at $11.280.

After testing support in morning trade that resides just below $10.500, natural gas bears were rebuffed for the second consecutive session as their efforts were met with buying. After hitting $10.510 in morning trade, June natural gas sprung higher.

“From a technical perspective the rebound Friday is pretty interesting,” said Steve Blair, a broker with Rafferty Technical Research in New York. “On Monday, when we got up to $11.360, we came very close to one of our major resistance numbers up at $11.376. Then on Thursday, we just missed our major support number at $10.460 when we got a low of $10.480. We got our second test of support on Friday morning with the low of $10.510, but support held once again. I think we are currently in a range and the downside is likely limited here.

“I honestly don’t think we are going to see this market go much lower as we approach summer and hurricane season. I think you also have to account for lower LNG [liquefied natural gas] imports due to the attraction of higher-priced markets. Because of these factors, I think we have seen the lows for a while,” he added. “Maybe we could see prices just under $10, but I don’t think that is going to happen. Things seem to be pretty comfortable in the $10-plus area. Every time we get down near some major support numbers, I think the bulls are going to come in and buy it up. As for the $11.360 high, with summer, hurricanes and an LNG shortage approaching, I think that price level is vulnerable. We probably have more of a chance for the market to head to the upside than to the downside.”

Commenting on the Energy Information Administration’s (EIA) storage report for the week ended April 25, Blair said the 86 Bcf injection was telling. “Even with the Independence Hub still off-line down in the Gulf of Mexico, the storage report for the week ended April 25 revealed an 86 Bcf injection, which was well above industry expectations and cut the year-over-five-year average deficit to 3 Bcf. I think the sizeable injection really spoke volumes about the Independence Hub outage in that it appears people are not as concerned as first expected. Another reason for the larger-than-expected storage build might be found in the recent strength of the cash market. Maybe people were out in the cash market buying to inject, or to make up for the Independence Hub shortfall.”

Analysts at Barclays Capital noted that while the 86 Bcf build “ran higher than the market consensus” and “took most market observers by surprise,” the deficit to last year should keep the bears in check. “With natural gas stocks at 1,371 Bcf, a deficit of 255 Bcf compared to a year ago, there will be a limit to how much lower prices could range in the short term,” Barclays Capital said in a research note. “In addition, next week’s storage report is widely expected to be much reduced, given the colder-than-normal temperature patterns moving through the Eastern states currently.”

©Copyright 2008Intelligence 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.