Natural gas futures on Friday once again found their price direction hitched to the neighboring crude futures market, which managed to notch a new all-time high for its fifth consecutive session. May natural gas futures put in a high of $10.595 before closing at $10.587, up 20.4 cents for the day and an astounding 68.6 cents higher than the previous week’s close. May crude closed at $116.69/bbl, up $1.83 from Thursday.

“The market as of late has been making people a little dizzy. I am a little bit at a loss for words for what has been going on,” said Tom Saal of Commercial Brokerage Corp. in Miami. “That said, if we get above $10.600, our next resistance comes in at $10.750 and then there is $11. The $11 level is a Fibonacci retracement of the $15.750 high and the $4.050 low.”

In studying the market’s continuation chart, the broker said historical data might point to prices above $10 for a fairly extended period of time. “This is only the fourth move in natural gas futures history that the market has breached the $10 level,” Saal said. “The first time we ever went above $10 was back in December of 2000. We put in a $10.100 high before dropping almost immediately. The second visit came in February 2003, where we got a little higher — up to $10.500 — before collapsing a short time later. The third time began in August 2005 and culminated in a $15.780 high during December 2005, before dropping below $10 in January 2006. We are now trading above $10, and it looks like we might stick around for a while because each time we have traded above that price level it appears we have gotten more comfortable with the price level. Don’t get me wrong, the market thinks these are high prices, but it is accepting them.”

Saal added that the strong finish Friday is telling of what is likely to come. “The fact that we settled near the high of the week means we are probably going to test some higher numbers next week. I was thinking if we got some easing in the weather, we might get a setback, but that just isn’t the case.” Following the recent upswing, Saal said he sees support at $10.280.

Commenting on some of the market’s fears about being able to refill storage in time for winter, Saal said that kind of talk is premature. “It is way too early to be concerned about that. The potentially bullish fundamental factors like hot weather, nuclear outages and hurricanes are still a couple months ahead of us. That is why they call these months ‘shoulder months.’ We will have to wait and see what the market is dealt.”

Analysts studying the moderately bearish 27 Bcf gas storage injection reported Thursday still see a positive tone to the market. “Supply side factors took a turn toward the bearish side in our opinion with the issuance of [Thursday’s] larger-than-expected 27 Bcf injection,” said Jim Ritterbusch of Ritterbusch and Associates. He added that his firm is holding on to its long-term bullish outlook but “conceding to a price pullback into the $9.50-10.00 zone where we will be looking to reestablish long positions.”

Long-term bullish or not, it might be “deja vu all over again” for Rocky Mountain producers. In spite of the Rockies Express pipeline (REX) expansion, producers are finding the differential between the Henry Hub and western marketing points starting to inexplicably widen out. “Traders are kicking the bananas out of the Rockies basis. Just recently that started to blow out,” said a Denver marketer. He noted that summer 2009 basis is out to $3.12 and the remainder of the summer 2008 was out to $2.20 and that had been at $1.50 a month earlier.

“Even though Nymex has been working higher, the Rockies aren’t seeing any of the move. There’s kind of a scramble right now where Rockies producers are getting nervous.” He added that his company was in pretty good shape because it owns transportation rights to the Midcontinent, and “a lot of marketers are looking to lock in the Rockies to Midcontinent differential. The Midcontinent basis has held steady,” he said. Locking in for producers is a little more challenging. “It’s hard to tell them to lock in basis at $3.00 for the next summer. The fixed price out there [Rockies] is $6. The fear is starting to set in for producers,” he said.

There is still more gas available in the Rockies than there is capacity to transport it. “REX is fully subscribed, and there are a few expansions on the horizon, but they are a couple of years out. The thought is that traders are going to start beating up the basis again,” he said.

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