November natural gas futures kept within a fairly small 31-cent range Friday as they seemed to hold onto some of the downward momentum from Thursday’s 80.8-cent drop. Ultimately, the prompt month settled at $13.226, down 14.9 cents from Thursday and 69.5 cents lower than the previous Friday’s close.

The front-month contract started Friday’s session by finding support in the $13.15 area and ended the session bouncing off the same number. During the course of the day, November natural gas could climb no higher than $13.46.

Traders pointed to encouraging shut-in news in the Gulf of Mexico as one of the reasons for the downward trend. The Minerals Management Service reported Friday that shut-in gas production currently stands at 6.441 Bcf/d, which is equivalent to 64.41% of the 10 Bcf/d of daily gas production in the Gulf. The new shut-in level marked a moderate decline from Thursday’s 6.628 Bcf/d.

“The market reacted to bad news on the way up and now it is reacting to good news,” said Tom Saal of Commercial Brokerage Corp. in Miami. “As more gas comes back online, I think it will take some of the fear out of the market.”

Saal said what is most interesting about natural gas futures right now is the fact that the market reached its elevated level methodically. “We reached that high level while the market was grinding higher. It wasn’t a blow-off in any sense of the term,” Saal said. “I think we are going to get some retracement and then we will wait to see what happens with winter.”

As to whether the $14.75 high from Wednesday marked a top, Saal said it is really hard to tell. “I don’t have anything on the charts that says the $14.75 is a top. I have a market profile saying maybe, but it’s not a real powerful one and that’s all we have,” he said. “So I think we will retrace, but if we get some early frost on the pumpkin, then we might see these elevated numbers again.”

The broker noted that all the players were participating on Friday. “The funds were buying and selling for most of the day and the Trade [producers and end-users] were selling.”

On the support side, Saal sees the psychological $13 mark as a pretty important mark, followed by $12.50. On the upside, the broker said resistance could come in around $13.35 and then $13.50.

Although November natural gas futures suffered a severe setback in Thursday’s 80.8-cent loss, market technicians barely blinked, citing their analysis that futures have a long way to go (lower) before they are willing to call an end to the bullish rampage.

“The ideal support for the bullish case for a continued uptrend is $12.690,” says Walter Zimmerman, vice president of United Energy. Zimmerman and other technicians who are students of “retracement analysis” contend that market advances or declines occur with periodic reversals of the dominant market direction. In the case of natural gas futures they look at the price advance from May 26, when spot futures traded as low as $6.03, to the recent high of $14.75 posted Wednesday by the November contract.

Retracement analysis cites a move of 23.6% in the opposite direction of the major advance as a prime level that markets often reach when undergoing a significant trend. Thus a move downward of 23.6% to $12.690 leaves plenty of room for November futures to fall and still keep the bull move intact, analysts say.

Other important points include a 38.2% retracement or $11.420. This is the “must hold” price for the bullish case to remain in place, Zimmerman contended.

Those who focus on supply-demand issues cite a market in the process of rationing out winter storage supplies that at present are slightly ahead of the five-year average by means of reduced industrial demand.

“We still look for the process of assuring an adequate winter supply base to fall heavily on demand destruction across power and industrial consuming segments,” said Jim Ritterbusch of Ritterbusch and Associates. He noted that increased import availability is limited and emergency stockpiles are nonexistent. “We don’t feel that the process of price-induced demand deterioration has completely run its course,” he suggested.

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