Amid easing tensions in the Middle East and a price pullback inthe nearby crude oil trading pit, natural gas futures were softerFriday, as traders elected to take profits following last week’salmost 80-cent rally. The November contract finished at $5.537,down 9.3 cents on the day, and 24.3 cents off Thursday’s pricepeak.

Traders were almost unanimously in agreement that in order forprices to have continued higher Friday, the situation in the MiddleEast would have to have gotten worse. That did not happen andprices in both crude and natural gas slipped ahead of the weekend.Crude finished just over a dollar lower on the day at $34.99.

For Tom Saal of Miami-based Pioneer Futures, the writing was onthe wall for prices to sift lower Friday following a non-trend dayThursday. “Despite the 12.2-cent gain, the market made its dailyhigh and low within the first 30 minutes of trading [Thursday],reflecting a balance of buying and selling throughout the rest ofthe day… Look for movement [Friday] away from the balance andtoward negative development,” wrote Saal in his daily Natural GasTrader’s Outlook Friday. Negative development is the term for aprice area which the market moves through, but does not trade veryheavily within. Through looking at the Market Profile TradingSystem developed by Pete Steidlmayer, Saal identifies $5.25-50 asan area of negative development and thus believes the market willlikely gravitate there when trading resumes this week.

Another reason why Saal predicts the market will continue lowerthis week is because of traders’ unwillingness to hold or continueabove new highs that were achieved last week. “The move higher wasdriven by the funds. What we failed to see was much in the way ofcommercial buying to sustain the rally,” he continued.

And Saal is not alone in his view. Also chiming in on the sideof the bear is Tim Evans of New York-based IFR Pegasus. “A breakbelow $5.59 should confirm that short-term profit taking is underway, knocking November futures back toward the $5.45-57 area wherewe see potential light support. However, we note that the marketspent very little time consolidating during its sharp advance andthere is risk of further erosion with failed resistance at $5.38and then a retest of the market’s breakout from the $5.28-30 areaas an alternate target.”

However, with storage supplies several hundred Bcf behindhistorical levels, weather becomes even more of a factor this yearand many believe it holds the ultimate key to the price directionthis winter. To go along with that, there has been plenty of talkover the past couple of months over exactly what Old Man Winterwould bring. That talk received some added credibility last weekwhen private and public forecasters announced their official winteroutlook.

According to reports released last Thursday by both the NationalOceanic and Atmospheric Administration (NOAA) and Salomon Smith Barney(SSB), this winter is expected to return to normal following threestraight winters of above normal temperatures. The warmest of thethree was last winter, when degree days heating accumulations totaled4,062 or 10% below normal. Comparatively, the heating demanddifference between 1998-2000 and the cold winters in the late 1970swas 20%, according to SSB (see fullstory this issue). For a visual representation of NOAA’sforecast, please visit: https://www.noaanews.noaa.gov/stories/images/enso.jpg

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