In Friday’s holiday-shortened trading session, June natural gas saved its best for last on its expiration day. After trading in the high $5.80s and low $5.90s for a majority of the session, the contract recorded new lows for the move in the last 40 minutes of trading before going off the board at $5.925 at 1 p.m. EDT, down a nickel on the day. The close Friday was 3.7 cents below the previous week’s close.

In the final 40-minute flurry, June put in a low of $5.750, before rebounding. July natural gas — which takes over as front month — settled 4 cents higher on the day at $6.154.

“We broke through our first level of $5.76, but we were unable to get down to $5.71, which marks the low from January 2005,” said Steve Blair, a broker with Rafferty Technical Research. “We got down to $5.75 and bounced from there. That is exactly what I have been looking for if the market ever got into that area. We hit the first major support numbers and out came some of the bargain hunters. The other possibility is you had some people who were short June with intention of delivery, who decided at these price levels they would cover it instead and not take it to delivery.”

Blair added that activity on Friday also seemed muted. “There were a lot of local traders off the floor on the day as people started their holiday trips early,” he said. “It was very quiet on the floor as people got their business done earlier this week or on Friday morning and blew out early.”

Looking at July natural gas, Blair said he “wouldn’t be surprised” if the contract visited the $6 level sometime this week. “It really depends on how the weather turns out,” he said. “I know it is expected to be fairly hot in the Midcontinent, the Midwest and even the Northeast, so that is a situation to be monitored.”

A Washington, DC-based broker said Friday’s expiration was pretty interesting. “I think a lot of guys had gotten out already,” she said. “We broke down below that $5.86 support from the prior Thursday and ended up finding support in the $5.70s. Here is the magic question: does July follow suit and head lower when we come in on Tuesday? My guess is with everything else being equal, I think it most likely will. We’ve been making this slow grind down here, but there has to be a bottom somewhere.”

She added that the late push lower was probably a result of people who were waiting until the end to liquidate. With the Memorial Day weekend, the broker also noted trading didn’t seem to be all that active on a volume basis due to traders extending their weekend.

Looking ahead to the market’s near-term path, the broker noted that it all comes down to weather. “The extremely warm winter could translate into an extremely warm summer,” she said. “We will have to see. The market has to remember there is plenty of gas around, at least until our first Atlantic hurricane is announced.”

The injection of 83 Bcf reported Thursday places current storage at 2,163 Bcf, well ahead of the 1,679 Bcf of a year ago and even further beyond the 1,447 Bcf five-year average. At the current injection rate inventories may set a record. At the end of May 1991, 2,273 Bcf was held in storage reservoirs.

To cope with the current oversupply, one school of thought holds that gas will have to be shut in. “We think the natural gas market will self-correct in a few ways, but the primary fix results from the limited physical capacity in the system,” said analysts at RBC Capital Markets. They contend that pressures will increase in the storage and pipeline systems and require involuntarily shutting in production. This phenomenon will occur in stages and, of all factors, will put the biggest dent into the gas storage surplus.”Three months earlier than normal, we are already seeing pressures build in certain areas, curtailing some producers’ gas flows,” they said.

In spite of the supply overhang, top traders see little likelihood that prices will fall much further. “While we have been maintaining a bearish trading posture in this market through most of this year, we are shifting to a neutral bias on the expectation of a sideways or consolidation-type trading pattern well into the month of June,” said Jim Ritterbusch of Ritterbusch and Associates. He suggested that next week the July contract may sink to the current trading range of the June contract, “especially with petroleum prices likely to be under pressure.”

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