The July Fourth holiday only delayed by a day the inevitable whiplash that gas futures typically cause on Wednesdays. Thursday opened with bang as August futures gapped about 8 cents higher at the opening bell, but the contract proceeded to do a nosedive in anticipation of another large storage refill. When the American Gas Association reported the ninth 100+ Bcf storage injection in 10 weeks (105 Bcf), futures plummeted to a new low of $3.040. However, the contract encountered surprising support there and managed to rebound to $3.136, down only 6.5 cents for the day.

“What a surprise,” said Ed Kennedy of Pioneer Futures. “The [AGA storage] report came out at 105 at the upper end of expectations. I fully expected us to be testing $2.97 by now. It got down to $3.04, and the trade buying came in,” he said in disbelief. “We’re bounding right back. It’s kind of interesting: bearish storage report and trade buying comes in. We may be holding this $3 level. I think it’s a bit premature to put out any buy recommendations or make too much of it but it sure as hell got my attention.”

Kennedy said if August closed over $3.15 he would expect a rally in Access probably continuing into Friday. Because it didn’t, however, “the jury is still out. But for the time being, it looks like the $3 level is holding.”

August ended the day 15.4 cents from its daily high and 9.6 cents from its low. Although August managed its second higher daily high in a row, it reached a new low and closed closer to its low than on Tuesday.

If August drops below $2.97, many observers see significant downside potential. Until that time, this market has a lot to prove on the upside. The bearish trend remains intact, with continuing reinforcement from rapidly growing storage levels. At 1,822 Bcf, working gas levels in storage are 186 Bcf higher than levels for the same period last year and 91 Bcf higher than the five-year average. Storage levels in the West are still 32 Bcf below last year but 5 Bcf higher than the five-year average. The Consuming Region East is 94 Bcf ahead of last year and 41 Bcf above the long-term average, and working gas levels in the Producing Region are the furthest ahead: 124 Bcf above last year and 45 Bcf above the five-year average.

“Despite that rebound and the gap higher at the open, I’m still bearish,” said one marketer. “There is no reason not to be at this point because of storage and the pace of this free-fall. But I don’t think it will be as easy pressuring this thing down much lower without some technical rebounds here and there like this morning. I think prices will reach the mid 2’s over time, probably about three or four weeks, maybe more with occasional rebounds.”

Another observer, however, wasn’t as quick to dismiss the buying that came into the market in the low $3.00s. “I think we could see more of a foundation develop down here over the next week. We could head back up just as easily as not. It still looks-range bound near-term to me.”

Initial support was seen at $3.04 and $3. Resistance is likely in the low $3.20s, followed by the mid-$3.30s.

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.