Carving out a wide 15-cent trading range on the daily charts, prompt month natural gas futures continued its volatile temperament yesterday as traders tested both the upside and the downside. As it turns out, neither thrust attracted much in the way of additional buying or selling, leaving the market to chop sideways to slightly higher Tuesday. July finished at $3.981, up 4.2 cents on the day, but nearly 7 cents below its high trade.

Traders were quick to point to relatively hot temperatures in the Northeast U.S. and double-digit increases in NY-area physical deliveries as a reason for the early Nymex buying frenzy. After opening higher and quickly rallying to $4.05, the July contract was hit with a wave of technical and fundamental selling that deposited prices 15 cents lower in just 30 minutes.

Few traders polled by NGI Tuesday were surprised by the price action, noting that the spike Tuesday took July futures to the $4.44 level before the selling took over. For Jay Levine of Advest Inc., the market continues to take one step forward and two steps backward. “Fundamentals have not changed. Storage is on pace to surpass 2.9 Tcf and aside from a little cooling demand in the Northeast, the weather remains a non-factor.”

Looking toward today’s storage report, analysts, brokers and traders are calling for a net increase of 80-100 Bcf to easily surpass the 64 Bcf injection observed a year ago. The five-year average injection is 86 Bcf, making last week the third largest injection week behind the Memorial Day holiday week and this week. Since the injection season began 10 weeks ago, the market has stored an estimated 876 Bcf in the ground and has turned a 404 Bcf year-on-year deficit into a 73 Bcf year-on-year surplus. In nine of those 10 weeks, the market has declined by an average of 13.5 cents on Wednesday.

However, the technical picture is still somewhat two-sided, added Levine. “Mind you, the technical picture itself does not look terribly healthy — the best that can be said is that in a bear market, a bounce is healthy and needed to keep participants ‘honest’. Initial support should be found in the $3.90 region, although I give the market 60/40 odds of breaking beneath that level [Wednesday].”

Resistance is first seen at $4.00-04 with better resistance in the $4.10-14 range, followed by $4.20-24, he said.

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