Downside

After dropping 5% Thursday in reaction to the overwhelmingly bearish storage news, the natural gas futures market rebounded Friday as traders covered shorts ahead of the weekend. Adding to the bullish euphoria over the expected chill over the weekend, traders were reticent to hold short positions for fear that the market would rally if another round of chilly forecasts were issued Monday morning.

Considering the expectations of mild weather in the coming week, some traders were undoubtedly surprised when a number of points, mostly in the East, saw flat to a dime higher pricing Friday. However, the overall thrust of a mixed market was downward, with losses running as high as nearly 35 cents in the Northeast but generally a dime or less.

December natural gas futures opened lower Tuesday, immediately probing the downside, but rebounded after failing to test the overnight Access low at $4.585. It bounced up to a high of $4.790 at 11 a.m. EST before relaxing and then trading sideways the rest of the day. The near-month contract managed a 2.2-cent daily gain, ending the session at $4.727. The January contract slipped 0.6 cents to $4.977, February added 0.4 cents to close at $4.982, and March slid 0.1 cents to $4.887.

The start of the November aftermarket saw a decidedly mixed bag of price movement Thursday. Compared with last-of-October numbers, Nov. 1 pricing ranged from about half a dollar lower (San Juan Basin) to a little more than a dime higher (SoCal border), with many gradations between those extremes. Overall, the negative changes outweighed the positive ones.

The National Center for Appropriate Technology (NCAT) is scheduled to release a new study Tuesday that documents the adverse impacts of electric and natural gas market restructuring on some residential consumers. The five-state study is the first product of an on-going project to examine the impacts of restructuring on residential consumers, particularly low- and moderate-income households.

Despite the recent run-up in natural gas prices, the U.S. Energy Department believes a shift to the downside is likely because of excess storage, more than adequate production capacity and only a moderate increase in demand. The downturn will come “once the summer season starts and the weakness of (storage) injection-related wellhead demand becomes more apparent,” according to the Short-Term Energy Outlook issued last week.

Following a successful restart of its Internet-only, Access trading session late Friday afternoon, the New York Mercantile Exchange resumed open-outcry trading Monday morning at 11 a.m. (EDT) in an abbreviated, three-hour session. And just as it has been each day since the beginning of the year, sellers had the upper hand in the natural gas pit, as they pressured the October contract to within striking distance of recent lows. The prompt month finished at $2.369, 18.3 cents beneath Friday’s $2.552 close.

After testing both the upside and the downside during the firsthour of trading, the futures market chose the middle road yesterdayas many traders waited on the sidelines ahead of the weekly storagereport. As a result, the November contract did not stray very farfrom center and finished the session up 1.5 cents at $2.601.

Between a plunging screen and mild-to-cool weather almosteverywhere outside the southern U.S., it hardly came as a shock totraders that Tuesday’s swing deals done for today only would failto measure up to September index levels. However, some consideredthe ability of crude oil futures to stay above $22/bbl and eventack on an extra dime a mitigating factor in keeping the initialaftermarket softness fairly mild.