April natural gas futures climbed in Friday morning trade to record a high for the week of $6.810 before easing off in the afternoon. The prompt-month contract ended up settling at $6.646, up 4.5 cents on the day and 14.4 cents lower than the previous week’s close.

Friday’s activity seemed to reinforce the view of some market experts that the market’s downside potential is exhausted. Downward momentum over the past few weeks has slowed considerably when compared to the sell-off in the weeks immediately following the all-time high of $15.780 in December.

“While we rallied a couple of times on Friday, April ended up basically chopping sideways for the rest of the afternoon,” said a Washington, DC-based broker. “There is not a whole lot of conviction in either direction.”

As to whether a bottom is forming, the broker said if it is, then the question becomes how long does it hold up. “I think things are still inconclusive,” he said. “We had two attempted rallies at the beginning and end of February, but both of them were beaten back pretty harshly. I think we need to see some attempt to do more than mull around in a 50-cent range back and forth to get that psychology changed.

“Should we on a seasonal basis be moving into that zone? The answer is yes,” he said. “Some of the short-term momentum indicators that we look at are starting to look a little bit more healthy, but I wouldn’t say they look bullish yet.”

IFR Energy Services analyst Tim Evans said there is some evidence that the flow of selling may have run its course, creating potential for a further short-term recovery in prices. “The new high for the week at $6.81 suggests the larger flow of selling into this market has been exhausted for now and may set the market up for an intermediate-term price correction to the upside,” he said.

Natural gas bulls may not have to worry about prices falling below last year if one analyst’s projections are correct. “The destruction of exploration and drilling rigs in the Gulf, which will limit replenishment capacity, will help keep natural gas prices above last year’s levels,” said Rakesh Shankar, an economist at Moody’s Economy.com. He added that nearly 10% of Gulf production will remain offline at the onset of a hurricane season, which for the moment appears to be an active one (see related story). “The fear of such a season will add a premium to natural gas prices for the next few months,” according to Shankar.

“As the focus shifts to summer cooling demand and the injection cycle kicks in, the market will likely be reminded of the production shortages we persistently suffer in the Gulf Coast,” added Shankar. That “will help bring prices back up through the summer months from current lows. This week essentially marks the death knell for winter, and we are entering spring with near-record levels of inventory.”

Not only do some see a bullish case developing, they are also advising longer-term purchases. With spot futures less than half of the December $15.78 peak and bearish momentum dissipating, the time to buy may be fast approaching.

“We’ve really stalled here near the lows,” said Charlie Sanchez, an analyst with Gelber and Associates in Houston. “The bear market definitely has justification, but it doesn’t have enough commitment anymore. I’ve got plenty of industrial customers and plenty of utilities that are buying from now into March of next year.”

Industrial customers or not, technicians aren’t willing to call a market bottom just yet. The ability of the April contract to hold recent lows and the failure to breach upward resistance leaves the market in a somewhat neutral pattern. Walter Zimmerman of United Energy notes that support at $6.50 and resistance at $6.72 have both held. “The result on the daily chart was a neutral spinning top. On the bullish side, the downside momentum is gone and a rounded bottom may be forming. On the bearish side, until and unless the so-called bottoming action leads to a rally, this congestion just above the lows will look more like a bear market rest stop in a downtrend,” he noted.

In other news, the New York Mercantile Exchange (Nymex) announced that a seat on the Nymex Division of the exchange sold Friday for a record $3.8 million. The seat surpasses the $3.775 million record set on Nov. 14, 2005. The exchange also announced that it is further expanding Access trading hours to include an additional Friday afternoon trading session, beginning on March 17 for the trade date of March 20. Under the extended trading hours, all Nymex Division energy products traded on Access will now have an additional trading session from 3:15 p.m. to 5:00 p.m. EST each Friday afternoon and preceding all major holidays. The trade date for the additional trading session will be the following business day.

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