Adding to Thursday’s modest gains, the natural gas futures market picked up some steam Friday as long-expected short-covering entered the Nymex pit. The local- and fund-led move higher Friday was anything but a straight line, however.

Instead, prices undulated throughout the session in a series of mini-rallies interspersed with commercial-led sell-offs. When the dust had cleared and the orders counted at Nymex, there was little question bulls were victorious. With a 15.6-cent gain and $4.874 close, the September contract has notched a gain in each of the three trading sessions since it became prompt month.

“We saw a pretty big delayed reaction to [Thursday’s] storage report,” said George Leide of Rafferty Technical Research in New York. “Locals were looking for a bigger number and were short ahead of the report. Add in the fear that [at least one] of the tropical systems in the Atlantic could become a named storm over the weekend, and you had the perfect recipe for a short-covering rally.”

As of Friday afternoon the National Hurricane Center was monitoring a large tropical wave located about 1,200 miles east of the Windward Islands in the Atlantic. Although dry air aloft was inhibiting strengthening Friday, the weather system had the right set of environmental conditions to strengthen into a tropical depression over the weekend, the NHC said.

Also on traders’ radar Friday was more than just a blip in the crude oil and related product markets. After a slow rebound following its low at $29.18 last month, the September crude contract surged higher to close at $32.31 amid a frenzy of speculative and commission-house buying. At $1.77, the gain notched Friday was crude’s largest since September 2001.

According to the Energy Information Administration, natural gas storage increased 83 Bcf to 2,032 Bcf during the week ending July 25. By exceeding the year-ago build of 48 Bcf, the market took another hefty chunk out of the oft-quoted year-on-year deficit, which now stands at 502 Bcf. Also drifting lower is the market’s shortfall compared to the five-year average, now at just 257 Bcf.

Not only did the 83 Bcf injection fall near the middle of the 80-90 Bcf range of expectations, it was identical to the previous Thursday’s 83 Bcf refill report. August futures dropped 14 cents in trading on that day; a feat not possible last Thursday mainly due to the fact that many local and institutional traders were already so short.

In daily technicals, chartists were impressed by the market’s ability to follow Wednesday’s $4.58 low with a $4.59 low Thursday. “That paved the way for the market to take out resistance at $4.835 [Friday],” Leide continued. “[Friday’s] action has repaired the charts a little bit and we now look for a test of $5.02. A break higher to $5.18-20 is possible should the market continue higher,” he assessed. On the downside, Leide sees support in the $4.75-79 zone.

Tim Evans of IFR Pegasus agrees with Leide’s outlook for higher prices. Specifically, Evans sees resistance first at the psychologically important $5.00 level followed by mid-July highs at $5.18-23. To back his bullishness, Evans is long from $4.76 with a protective sell-stop placed down at $4.66 to limit his exposure.

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