There was a strong bull rally in gas futures yesterday. Afterbusting through and settling above the $3 barrier on Wednesday, Maysurged 6.6 cents higher to a new high of $3.087, a couple centsfrom its daily high of $3.105 and a greater distance from its$3.045 low for the day. The summer strip closed up 6.8 cents at anew high of $3.11, and the 12-month strip set a new high at $3.116.

“Cash was strong. Cold weather is going to hold across thenorthern tier of the states for a couple of days, but next weekit’s supposed to be warmer than normal, according to the NationalWeather Service anyway. I’d be surprised if cash can hold up nextweek,” said one futures broker. “But as for what happened today,you had trade on the buy side; you had some funds come in on thebuy side, those are the discretionary funds, day trading funds; andyou had the locals trying to push it higher looking for stops. Theother thing that we noticed though today [yesterday] was that wehad scale-up trade selling. They wanted this to go higher so theycould sell more, and every time we made a new high here the lasttwo weeks we noticed that trade was a seller.

“I don’t think we’re going to stay up here long,” he added. “Iput out a sell recommendation on the summer months. I’d besurprised if cash could hold in there next week. Where’s the demandgoing to come from? Yeah, they’ll be injecting [into storage] butthat’s not going to soak up all the supply. If it is warmer thannormal next week it’s going to be interesting to see what happensto cash.” He sees resistance at $3.13 and $3.19 and support at$3.025, $2.94 “and then free-fall.”

The market’s ability to hold on in the $2.90s for several dayslast week was a major factor in the push above $3, said oneanalyst. He also mentioned that Wednesday’s American GasAssociation storage report contributed to yesterday’s run-up. TheAGA reported what many considered a smaller than expected injectionof 2 Bcf, leaving 1,033 Bcf in storage (31% full). The deficitcompared to last year now stands at a whopping 336 Bcf.Nevertheless, working gas in storage is basically flat with averagelevels (since 1994) for this time of year.

“I think the market is overvalued to a significant extent,” theanalyst added. “If you consider the year-on-year deficit that wehave in storage and the year-on-year premium we have in price, itseems like we have too much price premium in this market. At somestage we are going to re-evaluate that.” However, that may not beuntil after the market tests the mid $3.10s or perhaps $3.20, henoted.

As of 6.30 p.m. last night, May had slipped 1.5 cents to $3.072.

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