After tumbling lower during the first hour of trading, natural gas futures rebounded late Friday morning as traders covered shorts in an effort to minimize their exposure should a bullish development — either geopolitical or weather related — emerge over the long holiday weekend. In an abbreviated session cut short at 1 p.m. EST ahead of the Monday holiday, the March contract closed at $5.851, up 11.1 cents on the day, but down 19.2 cents for the week. Futures will reopen Monday at 7 p.m in Access trading with regular open-outcry trading set to resume at 10 a.m. Tuesday.

Several sources polled by NGI were surprised by the market’s late rebound Friday. Prior to that session, the market had put in a string of three straight sessions of lower lows and lower highs. With sellers dominating the morning price action, Friday appeared a sure bet to follow the trend. However, buyers were edgy and turned the market around before it would get down near Thursday’s $5.66 low.

One possible explanation for the rebound is that short-sellers elected to cover their positions rather than risk an adverse price move over the three-day weekend. While natural gas supply or demand would not be directly affected by a war in Iraq, it would likely move in sympathy with crude oil futures, at least initially. Crude ended up 44 cents at $36.80 as the debate continued over how much more time — if any — weapons inspectors would have in Iraq. Another factor that played into the rally, sources agreed, was revised weather forecasts, which call for the return of below normal temperatures on the heels of this week’s warm up.

According to the latest eight- to 14-day forecast released Friday by the National Weather Service, below normal temperatures are expected to reoccupy a large swath of the Central and Northern Plains, the Great Lakes as well as the Midwest and upper Midwest. If that forecast is ratified and is closely approximated by the six- to 10-day outlook released Tuesday, the market could use it as a reason to make another push toward the $6.00 mark.

And while admitting that the weather will continue to steer this market, Tom Saal of Commercial Brokerage Corp. points to the rising tally of non-commercial long traders as evidence the market has already put in its high for the move. “The funds are running out of bullets. There is no new money coming into [natural gas] and nobody else is willing to buy this thing.”

To back this assertion, Saal points to the latest Commitments of Traders data available from the Commodity Futures Trading Commission showing that the number of non-commercial traders holding long positions peaked at 71 as of Feb. 11. “The last time we had such a large number of speculators on one side of the market was back in the first quarter of 2002, when prices dipped down to $1.85,” Saal continued.

He may have a point, a quick look back at NGI’s historical archive of COT data reveals that on Feb. 5, 2002 there were 72 non-commercials holding a net short position — roughly the same number that are now long. From that point in early 2002 going forward, the market trended higher and the number of non-commercials shorts decreased.

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