Following Thursday’s 17-cent price slide, the natural gas futures market was quiet Friday as traders elected to play it safe ahead of the weekend. Bears scored early Friday by carving out a new nine-month low. However, short-covering ensued and succeeded in recouping the day’s losses. The October contract was held to a tight 9.5-cent range Friday, all of which was etched in the first 40 minutes of trading. It closed at $4.483, up a modest 1.2 cents for the session.

Traders polled by NGI Friday admitted to being a little reluctant to throw their hats back into the ring ahead of the weekend and just a day after the release of a record-setting storage refill. According to the Energy Information Administration, working gas in storage increased by 102 Bcf to 2,588 Bcf as of Sept. 12. In addition to being bearish in absolute terms, the triple-digit refill was price-negative because the market was expecting an 85-96 Bcf refill. It was also bearish versus historical comparisons with 69 Bcf being injected during the same week last year, and a five-year average injection of 76 Bcf.

“It could have been a lot worse,” commented Jay Levine of Advest Inc. in New Hampshire of Thursday’s sell-off. “A 102 Bcf injection is the largest injection ever in the month of September… Buyers have been hard-pressed to find any bullish news.”

But despite the undeniably bearish storage and weather situation that exists currently, Levine is hesitant to call for a full-scale sell-off this week. Instead, he points to the uncertainty surrounding the upcoming winter as a potential springboard to higher prices. “Everyone remembers where this market went last winter. It would really take some nerve to continue to sell it before we have a good picture of what temperatures will be like this winter.”

Kyle Cooper of Citigroup agrees on the importance of weather forecasts and points to the increased role of residential and commercial heating demand versus industrial demand as a primary price determinant. “The industrial sector has always provided a quasi-load balancing/storage factor. Since the industrial consumers are typically much more economic-dependent, their demand was sensitive to price and helped bring the supply/demand balance back in line,” he said, referring to industrial buyer’s propensity to buy more at lower prices and less at higher prices. Based on that premise, Cooper expects volatility to reign this winter and suggests that hedgers and speculators put a premium on the quality of the weather forecasts they are watching.

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