Despite double-digit losses in the cash market, natural gas futures finished the week with only a slight downtick Friday as traders were unable for the second day in a row to press prices beneath support at $2.83. The December contract finished the session at $2.925, down 3.5 cents for the day and 32.3 cents for the week. The winter strip followed suit, slipping 2.2 cents to $3.066. However, the rest of the months were resilient to the price weakness, with all contracts from April 2002 forward notching a gain for the session. Trading activity was spare, with as an estimated volume of just 61,836.

Following a week in which the market lost 10% of its value, traders interpreted Friday’s price action in different ways. Pointing to the market’s ability to rebound off support at $2.83 and close near its $2.955 high for the session Friday, several traders were optimistic that prices may hold at these levels until the first blast of cold weather pushes prices higher. Bears, on the other hand, hung on to the fact that there is no cold weather to speak of in the latest forecast, contradicting winter outlooks released in late October calling for below normal temperatures during the second half of November. “Without weather, there is no demand, and all of that supply will weigh on this market until it breaks,” a cash trader said.

The supply that he is referring to, is of course, the near-record levels of natural gas currently in underground storage facilities. According to the American Gas Association, 10 Bcf was injected for the week ending Nov. 2, bringing working gas levels to an even 3,100 Bcf. The refill was bullish on the micro-level, not only because it fell short of expectations centered around the 25 Bcf area, but also because it was just a fraction of last year’s 36 Bcf injection. However, in the context of the larger fundamental outlook, AGA’s report is a weekly reminder that storage is nearly full and several hundred Bcf above both year-ago levels and the five-year average.

Very little change was seen in the weekly Commitments of Traders report released by the Commodity Futures Trading Commission Friday, despite a 30-cent decline over the same period. While the non-commercial segment of the market is currently net short more than 15,000 contracts, they have been known to hold a net short position as large as 35,000 — a move that would almost certainly lead to lower prices. Also holding a net short position, albeit small relative to their percentage of open interest, is the commercial segment of the market.

On the other side of the equation, holding a net long position of more than 23,000 contracts is the small, non-reportable or speculative trading portion of the market. Because they do not have the backing of a large integrated marketing company or the financial strength of a New York investment bank, it is believed that these traders would be the least able to stomach a move contrary to their position. It is for this reason that market watchers and analysts are cautious of a quick liquidation from these longs if the market continues to move lower.

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