In a session that had a little for both bull and bear, natural gas futures spiraled higher early Thursday only to crash lower late in the day as traders were finally successful breaking beneath support. In doing so the prompt contract slipped 5.9 cents lower to close at $4.054.

Market watchers pointed to an early surge by fund traders, who were active buying back their prompt month shorts and rolling those positions to July, as a reason for the positive open. The June contract rode that buying wave to $4.23 in the first 15 minutes of trading. As is always the case, however, the question yesterday was not what the market accomplished, but rather what the market failed to accomplish. Citing the market’s inability to pressure June above its $4.235 high for the week, traders increased their selling pressure as the day wore on.

Also responsible for the continuation lower Thursday was the market’s realization that despite the downward revision (from 119 Bcf to 106 Bcf injection) to last week’s storage report (covering the week ending May 11), the storage situation remains very bearish. According to the American Gas Association, 118 Bcf was added to underground storage facilities during the week ending May 18, bringing stocks to 1,182 Bcf. With that the market has trimmed its oft-quoted year-on-year deficit from a whopping 404 Bcf on March 30 to just 36 Bcf as of May 18.

Looking ahead, Tom Saal of Miami-based Pioneer Futures, looks for prices to extend lower in Friday’s pre-holiday abbreviated session today. Through his use of market profile technical analysis, Saal predicts the June contract will reach $3.955 Friday on what he calls, ” a range extension of the initial balance of the week.”

However, he does not rule out a pop higher on expiration-day Tuesday. “There are more than 16,000 open positions at the $4.00 put. If the market goes beneath the strike price ($4.00), there will be 16,000 new shorts in the market that will have to either make delivery or cover those shorts. I would bet that most of those positions are covered on Tuesday,” he said.

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