Pressured by selling in Thursday night’s Access trading session,natural gas futures broke to the bottom of its recent trading rangeFriday as sellers liquidated positions ahead of the weekend. Aftergapping lower at the open, the price action was almost entirely inbears’ favor. A brief and ultimately insignificant rally attemptshortly after noon (EST) was all bulls could muster and as a resultprices were left to finish the day on their lows. The Aprilcontract was the hardest hit, dropping 21.3 cents to close at$5.072.

Several traders contacted by Daily GPI were surprised by theprice weakness in a market that is already talking about potentialshortages this summer. According to the American Gas Association,73 Bcf was pulled from underground storage facilities during theweek ending March 2, bringing working gas levels to 786 Bcf or 24%full. Not since April 1996 — when storage plunged to 18% full —have supplies been so depleted. And while few believe that themarket is in trouble in the waning weeks of winter, there are manymarket watchers calling for a gas crunch this summer.

Citing a combination of seasonal weather, bullish technicals andlow storage levels, Susannah Hardesty of Indiana-based EnergyResearch and Trading expects prices to move higher to a series ofspring highs (B1, B2 and B3). “Historically, the highest peak ofthe spring high tends to come at B2 or B3, when an early seasonheat wave panics the market higher with expectations of what couldlie ahead during the summer months,” she said. Accordingly, shelooks for the B1 high to occur during the month of April on a moveto the $6.00-8.00 area. The B2 and B3 highs will occur in May andJune on price spikes up to $9.00 or $9.50 respectively, she said.

Similarly, Ronald Barone of New York-based UBS Warburg (formerlyPaine Webber) looks for the market to make a “soft landing” atthese price levels. Admitting that it may be too early to call,Barone cites a slowing price decline, return of more normaltemperatures, dwindling storage position and a significant level ofplanned nuclear outages as potential reasons.

Tom Saal, of Miami-based Pioneer Futures, is also bullish, butfor different reasons. Through analyzing Commitments of Tradersdata released each Friday by the Commodity Futures TradingCommission, Saal has discovered that as commercial traders near anet long position, futures prices tend to bottom out. As of lastTuesday, commercial traders were net short only 5,699 positions,which is their lowest short holding since January of 2000 whenprices were near the $2.00 level. Because commercial traders arenet long the physical commodity, they are almost always net shortfutures. Conversely, non-commercial traders, who typically usenatural gas as a hedge against inflation, are naturally net long.However, non-commercials only constitute 2.1% of all open positionsright now and many analysts suggest this is in reaction to the highvolatility present in the market.

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