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Futures Struggle Friday, But End Above Key $5.00 Level
With little in the way of fresh fundamental information Friday, the natural gas futures market chopped sideways within a narrow 8.5-cent trading range. Nearly equal amounts of bargain buying and fund selling were seen in the August contract, which followed Thursday’s impressive bounce with a more subdued, 2.8-cent decline to finish the week at $5.022. At 49,295, estimated volume was evidence of the lackluster trading Friday.
On previous moves below $5.00 in April, the market received an injection of buying interest and that was the case again Friday. Market watchers pointed to hedging by end users, many of which have fallen behind on their winter purchases due to high gas prices this spring and summer. On Thursday, that buying was enough to produce an 11.6-cent rebound, and on Friday it kept the August contract from breaking back below psychologically important $5.00 for more than just a minute.
Although buyers may be behind on their purchases, they have not been idle. Facing an all-time low storage level in April, LDCs and utilities responded with record-breaking storage injections. Kyle Cooper of Citigroup calculates that storage injections thus far this season have exceeded the five-year average by 25%. Assuming the rest of the storage season surpasses the five-year average injection by 20%, Cooper estimates storage will approach the 3,000 Bcf level by November.
According to the Energy Information Administration, 93 Bcf was added to underground working gas stocks last week, bringing the total to 1,866 Bcf as of Friday, July 11. Because the refill fell in the middle of the common range of expectations centered on a 90-100 Bcf build, the storage report was open to interpretation. The market’s price action immediately following the report was evidence of this fact Thursday as traders propelled the August contract back up to $5.06 and then dumped it back down to $4.88, all within five minutes.
Although often the quietest trading day of the week, Friday’s are not insignificant for technical traders. How the market closes at week’s end can tell a lot about what to expect in the week ahead. While Friday’s $5.022 close in August futures was nearly the center point of its $4.82-$5.20 trading range for the week, the settle was bullish because it was above key support at $5.00. On the upside, Tim Evans of IFR Pegasus in New York targets the $5.09 level as a pivot point. A break higher, he said, could lead to a test of last Tuesday’s $5.20 high or downtrend resistance at $5.29.
Should $5.09 hold, on Monday morning, the bears might have the ammunition to press the market back to Friday’s low at $4.995 and support at $5.00. A violation of that level could lead to a move down to last Wednesday’s $4.82 mark, Evans continued. Longer term support is layered in at $4.69, $4.44 and $4.07, he said.
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