With forecasters continuing to call for Hurricane Wilma to pass up Gulf of Mexico infrastructure and hit Florida head-on instead, natural gas futures traders were freed up on Friday to explore support levels down around $12.70. After bouncing off $12.68 in the morning, November natural gas ended up settling at $12.872, down 10.5 cents on the day and 34.7 cents lower than the previous Friday’s close.

The winter months of January and February of 2006 also shed a little bit of weight Friday. January natural gas closed 12 cents lower at $13.554, while February settled 10 cents lower at $13.484.

“We kind of pressed on the downside Friday up against support levels, but we didn’t break down,” said Tim Evans, an analyst with IFR Energy Services. “We could be saving that for Monday. We kind of dented that $12.70 support, but we didn’t really break it with any gusto.

“The range Friday wasn’t all that wide, so we could theoretically see a gap on Monday in either direction,” he told NGI. “If Wilma happens to work its way further north, it is conceivable we could gap to the upside above the $13.025 from Access. On the downside, if the storm sticks to its forecasted track, than we could gap lower over the critical support area.”

Evans noted that in order to get through difficult support or resistance levels, the market has been known to use gaps to blast beyond them, sending a very strong message. “I am bearish in this situation,” he added. “We are up here at a very high price altitude and we have an average level of gas in storage; this thing could go to $8. In addition, demand doesn’t look so good and crude is far off of its highs, so there just isn’t that bullish sentiment with regards to the broader energy sector.”

While Wilma’s path still looks like the storm will move south and east of the major production areas, the Minerals Management Service reported Friday that shut-ins in the Gulf of Mexico actually increased from Thursday’s 5,196 MMcf/d to 5,337 MMcf/d (see related story).

“I don’t know if that should come as a tremendous shock to the market,” Evans said. “We have been hearing for two days that BP and others have been moving nonessential personnel off of rigs, so I don’t think the marginal shut-in hike makes a material difference. On a psychological level, perhaps it has a slight meaning, but we are not talking about a whole lot of gas here.”

As an example, Evans pointed to the Energy Information Administration’s 75 Bcf injection storage report for the week ended Oct. 14. “We had 5.5 Bcf shut in all during that week and we still added an above-average volume of gas to storage,” he said. “This is not a market that is on a razor’s edge as far as the balance is concerned. There seems to be plenty of gas supply from other regions to compensate for the losses in the Gulf of Mexico. The real issue is oil and gas rig damage, and the track the storm currently is on doesn’t threaten that infrastructure.”

He also pointed out that Wilma could turn into a bearish event for the natural gas market on a net basis due to the storm’s Florida track. “For at least a short while, we are going to be losing natural gas demand from South Florida. In addition, we will have a cool, wet Southeast for the next few days, so there is not going to be a lot of air conditioning power demand,” Evans said.

As the November contract grinds lower, market technicians are studying their charts and spreadsheets to see if an end to the move lower is in sight or if natural gas prices are likely to continue falling. The November contract has fallen near these levels before and rebounded. On Oct. 5, Oct. 10 and in Thursday’s trading, November futures fell to $12.70, $12.76 and $12.75, respectively. On the first two moves, prices rebounded handsomely.

The question is whether the market is strong enough to pull it off again. Technicians will be ready to move depending on the market’s ability to find “support” in the $12.70 area. Should the market demonstrate that $12.70 will hold, buyers could be ready to enter the market. On the other hand, if prices break “support,” it would be analagous to falling through thin ice, and in technical parlance, prices would likely sink to the next level of support.

Technicians who study market cycles and waves have some ideas of where that might be. “In the bigger picture $12.690 is still the ideal closing basis support for the most bullish longer-term wave count,” said Walter Zimmerman of United Energy. Should the market fall further, then “potential nearby support points — on a decisive close below $12.690 — include $11.970 and then $11.420,” he added.

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