Natural gas traded Wednesday reversed Tuesday’s modest gains as losses of close to a dime were widespread over all market points. One point made it to the plus column and one point was unchanged, but all other locations followed by NGI were well into the red. The NGI National Spot Gas Average shed a hefty 8 cents to $1.74.

Futures prices slipped lower as well, ahead of an Energy Information Administration (EIA) inventory report that is expected to show a continuing storage surplus, but an increase below historical norms. At the close of trading, June had lost 4.7 cents to $2.001, and July was down 5.4 cents to $2.131.

“In the event we have an ultra-mild summer, and we don’t see much likelihood of that but you can’t rule it out, and if in fact we have a winter next winter that is just as mild as the last winter, and we don’t see much likelihood of that happening, prices will be relatively close to the present forward curve,” EBW Analytics President Andy Weissman said Wednesday in a webinar. “In our view, that is the only scenario in which that would occur.

“We see the current prices for natural gas as being almost a worst-case scenario. That doesn’t mean that prices will immediately go straight up, and over the next two to three weeks I think we will see further declines. But we view that as very temporary and a direct product of the fact we are in the middle of the shoulder season when demand for natural gas is at its low point for the year.

“We see many analysts as way off base,” he said. Underlying the analysis is Weissman’s belief that many of the assumptions about the natural gas market “are off the mark.”

He cited a widespread belief that low natural gas prices were likely to last indefinitely because of an oversupplied market that was likely to remain so even in a normal weather scenario. Also there is a belief, he said, that there is an inexhaustible supply of low cost gas, and producers can ramp up production quickly should the market tighten. Also if prices remain low, electricity prices will remain low.

If a technical analysis by Societe Generale is correct, the lower price scenario cited by Weissman may indeed be on target as the market is now at an important support level.

“At $1.60 [March], it has retested lows formed in 1997/1998/1999 and has also met the projected target for the fifth wave (Elliott standpoint),” analysts said. “Formation of a monthly hammer along with long-dated indicators, which have started to inch higher from support, highlight a significant bottom appears to be in place.

“After a steady rebound, natural gas has tested the upper limit of a multi-month descending channel at $2.29 and is currently undergoing a retracement.”

Relative to the July contract, “it is now testing an immediate support of 2.16, the 50-day moving average. With daily RSI [relative strength indicator] near a support, a retest of $2.29 looks more likely. A break above will lead to a larger rebound toward graphical levels of $2.47/2.54. Only a break below $2.16 will mean the possibility of a retest of recent lows of $2.05 with next support at 1.94/1.87.”

The July contract did indeed break that support level Wednesday with a settlement at $2.131.

Wednesday’s decline was seen as a market showing it was “still lacking a strong enough fundamental justification to break free,” said Citi Futures Perspective analyst Tim Evans. “The temperature forecast is little changed…at least in terms of population-weighted degree day accumulations.

The EIA storage report Thursday for the week ended May 13 “is seen as a 77-Bcf net injection according to an early survey, which would be a supportive outcome compared with the 91-Bcf five-year average refill,” Evans said.

Last year a stout 98 Bcf was injected, but this week storage is expected to fall short of historical norms. IAF Advisors is looking for an injection of 75 Bcf, and ICAP Energy calculated a 79 Bcf build. A Reuters survey of 20 traders and analysts revealed an average 78 Bcf with range from +73 Bcf to +83 Bcf.

It may be one of those market drivers that is only realized after it occurs, but current cool temperatures have the capability of tempering what is expected to be a robust injection season. It is shoulder season, and weather patterns are not known for their market-moving capability, but according to the National Weather Service (NWS), temperatures “will be 10 to 20 degrees below average from the central Appalachians westward to the central/southern Rockies and southern Plains.”

Showers and thunderstorms were expected to move through the Southeast on Wednesday, “as a frontal boundary pushes through the Eastern U.S. Much of the Mid-Atlantic, Southeast and southern states will persist in having below-normal temperatures. Many locations will have afternoon highs up to 20 degrees cooler than those typical for mid-May,” NWS said.

In physical trading, the greatest declines Wednesday were seen in the Northeast. Algonquin Citygate was quoted 32 cents lower at $1.75, and gas on Iroquois, Waddington fell 17 cents to $1.80. Deliveries to Tenn Zone 6 200L fell 24 cents to $1.80.

In the Mid-Atlantic, gas on Texas Eastern M-3, Delivery shed 11 cents to $1.38, and gas bound for New York City on Transco Zone 6 skidded 13 cents to $1.40.