The June natural gas futures contract was able to shrug off its second straight negative open Wednesday as buyers entered the fray when it became apparent the market wasn’t going to fill in a key chart gap from late April. The June contract finished at $5.660, up 9.2 cents for the session and 20 cents above its morning low. Gains were even larger in the July contract, which rumbled 10.2 cents higher to $5.735.

Several traders were surprised by the strength on the day before the Energy Information Administration is expected to release a bearish storage report. Citing fewer degree days experienced last week than normal (54 versus 65), analyst Stephen Smith calls for a hefty 87 Bcf build. “This would imply that our ‘seasonal storage deficit’ (relative to ’94-98 norms) will be decreased by 17 Bcf, from a deficit of 370 Bcf to a deficit of 353 Bcf.”

However, by comparing current storage levels to the five-year average from 94-98, Smith has chosen a less bullish case. Compared to the five-year EIA average from 1998-02, storage is currently 563 Bcf lower.

Another possible explanation for Wednesday’s strength is the ongoing concern over production shortfalls. Speaking at GasMart/Power 2003 in New Orleans this week, Anadarko’s Richard Sharples said between 4.5-7 Bcf/d of demand will need to be pushed out of the market through higher prices in the months ahead in order for the industry to have sufficient gas inventories for the 2003-04 heating season (see Daily GPI, May 7). At the same time, Sharples revealed that approximately 40% of Anadarko’s 2003 production has already been hedged.

As is often the case, technical factors were prevalent in the futures pit Wednesday. Specifically, chartists pointed to the $5.45-52 chart gap that the market failed to fill in on Wednesday morning’s price downdraft. The June contract extended to a low of $5.46 at about 10:10 a.m. EPT.

Looking ahead, that level could be a pivotal level for prices in the intermediate-term, says Craig Coberly of GSC Energy in Atlanta. “At the present stage of price development, trading below $5.47 would be troublesome. The bullish outlook wouldn’t necessarily be invalidated at that point, but since it might, we’d have to seriously consider that possibility,” he wrote in a note to customers yesterday. On the upside, resistance is seen at the series of recent highs in the $5.68-72 area.

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