Rally

Bullied by winter weather — both outside their windows and in the latest forecasts — futures traders were quick to react Wednesday morning as they propelled natural gas prices above the $3.00 mark for the first time since November. In dramatic fashion, the January contract not only gapped higher on the open, but also gapped above psychological support at $3.00. However, after posting its $3.02 opening trade, the market fell lower throughout the session as traders looked apprehensively to today’s release of fresh storage data. The prompt month settled with a slim, 1.6-cent advance at $2.911, more than a dime off its high for the session.

This week’s price rally ran out of steam Thursday with nearly all points declining in double digits. Traders anticipated a moderation of the blast of winter that had invaded most of the nation except for the Southeast and Mid-Atlantic states, and also noted considerable weakness in the natural gas, crude oil and heating oil futures contracts.

In tandem with heavy losses in the nearby crude oil and related products markets, natural gas futures shifted lower Wednesday as traders weighed the impact that fuel switching could have on prices this winter. The latest storage report from the American Gas Association (a 7 Bcf injection) rocked prices first lower and then higher, before the December contract finished the session back in the middle of the its daily trading range, down 4.4% at $2.676. December crude oil futures finished with an 8.6% loss at $19.80, its lowest close on a spot month basis since July 1999.

Prices acknowledged the falloff in weekend demand and widespread Chamber of Commerce-like weather by continuing to slump Friday, but late rebounds were strong enough to astound more than one trader. There wasn’t much consistency in the declines, which ranged from about a nickel or less at a few Gulf Coast, Midcontinent/Midwest and Pacific Northwest points to about 35 cents at OFO-plagued PG&E-related points.

Cash prices plummeted by about a quarter or more nearly across the board Thursday, ignoring an essentially flat screen during the morning that eventually eked out a gain of nearly 7 cents. The market rout had been signaled the day before by a futures dive in response to a larger-than-expected storage injection report, late retreats in Wednesday morning’s cash trading and reports of big drops in both on-line trading for Friday and and rest-of-month baseload numbers.

Buoyed by double-digit gains in the cash market, along with the release of another in a string of bullish long-range weather outlooks, natural gas futures erupted higher Tuesday, as traders pressured the market to new four-week highs. The November contract gapped a dime above Monday’s high, and never looked back yesterday, finishing with an impressive 21.4-cent advance and $2.592 closing price. Trading volume was high, with an estimated 90,649 contracts changing hands.

Last week’s market rally was starting to fade in trading for the weekend. Eastern points were mixed Friday, with price movement both up and down, but trending largely toward the downside, while the West was solidly in a softening mode with considerably larger declines.

Following on the heels of Thursday’s measly one-day, 0.2-cent price retracement, natural gas bears were up to their old tricks Friday as they pressured the futures market to a gap lower open on the daily charts. However, that would prove to be just about the extent of the selling because prices were able to ratchet higher from that point forward as traders covered shorts amid constructive weather outlooks. The October contract finished 1.5-cents weaker at $2.38 in holiday abbreviated trading.

Fueled by Wednesday’s 30.6-cent gain, natural gas futures surged higher at the open yesterday as traders salivated over the probability of another sub-100 Bcf storage figure next Wednesday. However, the combination of mild weather forecasts for the weekend and nervous new length proved to be too much, leaving bulls almost defenseless as prices cascaded lower in the afternoon. The August contract closed at $3.128, down 14.8 cents on its penultimate trading day.