July natural gas is expected to open a penny lower Wednesday morning at $4.52 as traders see the bullish case losing momentum and technical signals deteriorate. Overnight oil markets firmed.

Analysts see Tuesday’s drop as a case of tired longs bailing. “Natural gas futures fell for a second day on Tuesday, with apparent long liquidation knocking 11.5 cents (2.48%) off the nearby July contract to $4.530/MMBtu settlement,” said Tim Evans of Citi Futures Perspective following the close.

“The market began this downswing as a correction to last week’s rally in the face of weeks of above-average storage injections, but it may have gotten an extra push to the downside after the DOE Short Term Energy Outlook showed May dry gas production reaching a new record of 69.49 Bcf/d, an increase of 3.17 Bcf/d (4.8%) from a year ago.

“Growth in supply for last month was more than double the corresponding 1.46 Bcf/d (2.6%) year-on-year increase on the demand side of the market and suggests that the bearish storage trend of the past two months may well continue, at least in the absence of intense heat this summer.”

Evans forecasts a build of 114 Bcf in Thursday’s storage report and looks for subsequent three-digit gains for the two weeks following. By June 27 he sees the five-year “surplus” down to an 805 Bcf deficit. The five-year deficit currently stands at 896 Bcf.

Market technicians see Tuesday’s decline as re-invigorating the case for a continuation of a longer-term down trend. “With natgas crashing through $4.636, the case for a completed ABCDE rising wedge has gained some serious traction,” said Brian LaRose of United Energy in closing comments Tuesday to clients. A rising wedge is a bearish chart pattern that signals the recent trend, which took July as high as $4.743 on Monday may be over. “But bears still have work to do. To confirm the down trend has been restored, $4.386-4.359 must now be broken. Accomplish this and the A=C objectives from $4.877 (July contract) will be our downside targets. a=c cuts at $4.163. 1.618 a=c is down at $3.805.”

In overnight Globex trading July crude oil added 15 cents to $104.50/bbl and July RBOB gasoline rose two cents to $2.9928/gal.