Traders continued to flush out weakness in the October natural gas futures contract in the overnight Thursday electronic trading session, which left the action on Friday muted. After trading within a thin $5.470 to $5.545 range during Friday’s regular session, the prompt month finished out the week at $5.501, down 14.9 cents on the day but 3.3 cents higher than the previous Friday’s close.

“I think the market was up earlier in the week on a round of fund short-covering, but I think the activity on Thursday and Friday was the realization of how much supply we actually have, which was confirmed with Thursday’s storage report,” said Steve Blair, a broker with Rafferty Technical Research in New York. “If it wasn’t for the fact that we are smack dab in the middle of prime hurricane season, I think we would have a $4 handle on this market. If we don’t get any storms by the time the October contract expires, I think we will see $4 futures.”

Even with some storm activity in the Atlantic and potentially in the Gulf of Mexico, traders appeared unable to look past other bearish fundamentals. In addition to the 3 Tcf level in underground storage gas being eclipsed by the 36 Bcf injection recorded in the report for the week ended Aug. 31, temperatures for much of the country were doing little to increase gas usage. There was also speculation that gas prices have been headed lower as the market factors in lost demand from industrial users as the economy continues to slow.

As the futures market wallows back down in the mid-$5 region, some traders aren’t ready to give up on a resurgence from the bulls. “While many market participants are ready to pin the R.I.P. label on natural gas — saddled with ample supply — I’d be very wary of doing so simply because we’re still immersed in hurricane season, [as] supplies might be ample now but the future is still uncertain on all sorts of levels, and, if you ask me, the whole complex is still a bull, even if natural gas strolls through the cemetery and tempts fate from time to time,” said Jay Levine, a broker with enerjay LLC. “Until it’s six feet under..the game is still afoot and the complex will continue to trade with multiple reversals part and parcel.”

Levine also pointed out that natural gas has been sitting in oversold territory for so long that at some point, when the trend turns back up, it’ll likely last longer than the market has seen in some time. The broker said he sees support at $5.375, followed by $5.250 and $5.015. On the upside, he sees resistance at $5.650 and $5.750 and then $6.250 and $6.750.

Walter Zimmerman of United Energy, is in the camp of seasonal bulls and sees market attention turning to seasonal demand as the winter heating season looms. He is very wary of the short side of the market and his studies show “in the past, Labor Day weekend has marked a reversal in sentiment from a focus on bearish fundamentals to a looking ahead to seasonal demand.”

Supply bears, however, point to the ever-increasing levels of gas in storage and note the late September 2006 price slide, which took October 2006 futures as low as $4.050. Supply conditions were similar to the present with season-ending storage at 3,452 Bcf at the end of October. The Energy Information Administration Short Term Energy Outlook forecasts season-ending inventory of 3,553 Bcf.

As with most years at this time, tropical weather conditions are the “X factor” with regard to market direction. Ahead of the weekend, two systems were being monitored that had the potential to impact U.S. interests.

According to AccuWeather Expert Senior Meteorologist Alex Sosnowski, a low-pressure system in the Atlantic that was expected to become Tropical Storm Gabrielle could create “substantial” coastal flooding in the Virginia Tidewater area and the eastern part of the Delmarva Peninsula into Monday.

Of more concern for the energy industry was a second low-pressure system over the eastern Gulf. “Should conditions around the large area of thunderstorms continue to trend as they have over the past 24 hours, that system could develop tropical characteristics by early [this] week,” said Sosnowski.

©Copyright 2007Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.