Even with crude futures flipping back to gains on Friday, natural gas futures traders were unable to ignore their own commodity’s dour fundamentals going into a demand-reducing holiday weekend. The June contract tested support at $3.500 before closing at $3.515, down 8.8 cents from Thursday’s close and a whopping 58.3 cents lower than the previous week’s finish.

After reaching a high of $3.638 in overnight trading, front-month futures explored the downside for a majority of Friday’s regular session, recording a low of $3.478 just prior to their close.

“Another day full of weakness and we tested my $3.500 target low for the week,” said Julio Sera, a broker with Hencorp Becstone Futures LC in Miami. “Once you start getting these pullbacks, the natural support levels are the first things to show up and they become targets. We see $3.500 as a pivotal psychological number.”

Sera said the three-day holiday likely did not offer much support. “There is still very weak demand and the long weekend won’t help that situation either. Industrial demand, which is already low, will be even lower due to the holiday, so we’ll probably get another larger-than-expected build in inventories in the next two storage reports,” he said. “Combine the effects of a of couple bearish storage reports and the fact that housing numbers and jobless claims have not really improved and you’ve got a pretty weak environment for prices. These are the main factors that are keeping downward pressure on natural gas.”

The significant drop in values of the last week have also brought back into question whether the $3.155 low of late April could be tested. During the early May run-up to a $4.575 high, most market experts were ready to label the $3.155 from April 27 as the front-month contract bottom.

“I would not rule out a test of the lows, but I’m not so sure that is that important. If you’re lucky enough to buy at $3, I would buy it, hold it and roll it from month to month,” Sera said. “Stay long natural gas because eventually these things do recover. It has been proven time and time again that markets are cyclical. If you’re lucky enough to buy this low, I say buy it and hold it because no one can predict the exact timing effect of when these markets rebound. The cause and effect is normally not known before the market moves. For that reason I would be a buyer.”

Going into Friday, bearish traders saw little in the way of help coming from a strong crude oil market. July crude on Friday gained 62 cents to close at $61.67/bbl.

As if being unresponsive to crude oil market drivers were not enough, Thursday’s unexpected 103 Bcf inventory build has some analysts thinking that the current inventory surplus may grow even further and pressure prices even more. “The supply surplus against year-ago levels has now stretched to 514 Bcf, an overage of approximately 32%,” said Jim Ritterbusch of Ritterbusch and Associates.

He added that his firm currently believes that this large overhang has been discounted by current futures prices, but is also looking for an expansion of “at least 100 Bcf [as] providing a market dynamic that may require additional discounting.”

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