Stemming a three-day, 30-cent price erosion, natural gas futures rebounded modestly Friday, as scale-down buying lifted the market higher on expiration day. With that the May contract drifted off the board at $3.319, up 2.4 cents for the session but down 5.5 cents from the level from which it began its tenure as prompt month. By comparison, the April contract expired at $3.472, up a whopping $1.083 during its reign as spot contract at Nymex. At 132,266 estimated volume, Friday was not especially high for an expiration day, suggesting that traders elected to finish much of their business earlier in the week.

Many market-watchers polled by NGI Thursday had agreed that expiration day would feature a move lower early in the session followed by a late round of short-covering (see Daily GPI, April 26). As it turns out, that prediction turned out to be spot-on, as follow-through selling gave way to bargain hunting as the day wore on. “The $3.23 level held perfectly and you had to be a buyer against support down there,” a New York-based broker told NGI.

Ed Kennedy of Pioneer Futures in Miami was only surprised that the market did not rebound higher. “What we saw today was a mini-squeeze. You couldn’t really call it a true short squeeze. We rallied through the mid-session and then continued to rally through the last half hour, so it does look like the shorts waited for the last moment to cover their positions. However, I thought we might see prices back up in the $3.40s late in the session.”

And while the $3.319 close is negative compared to recent highs at $3.70, Kennedy is quick to note it is not too shabby considering all the ammunition the bears have had to work with this month. “April expired in the $3.40s. May expired in the $3.30s. It could have been worse.”

More interesting to Kennedy than May’s “mini-rally” Friday was the consistent scale-down buying in the June contract. June finished up 6.6 cents at $3.372, after coming perilously close to breaking below its 40-day moving average at $3.249. Kennedy attributed the buying to commercial traders and, to a lesser extent, speculative funds who used last week’s sell-off as an opportunity to buy into the market at lower levels.

Looking ahead, traders are likely to take a wait-and-see approach to trading this week. The first clues to the market’s direction will come from the cash market, which on Monday will trade gas for the last day of April and on Tuesday will trade gas for the first day of May. Also a factor will be expectations ahead of the weekly storage report. Many observers were shocked by the 69 Bcf injection announced last week and fear that another refill of that magnitude could spawn a price landslide. Very early estimates for the new report are centered on a 20-40 Bcf injection, which would fall bullishly short of both the 69 Bcf injection from a week ago, as well as last year’s refill of 102 Bcf.

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