Coming off of a couple of hectic trading weeks that saw prompt-month natural gas rally significantly in a short stretch of time only to sink just as quickly, June natural gas futures on Monday traded within a $6.570 to $6.800 range before closing at $6.695, up 14 cents on the day. Monday’s close higher halted a seven-day streak of lower settlements.

Rekindling their on-again off-again relationship with the petroleum complex, natural gas futures on Monday appeared to be taking notes once again. June crude closed $1.82 higher at $73.70/bbl, while June heating oil and June unleaded gasoline settled 4.59 cents and 5.74 cents higher, respectively, at $2.0588/gallon and $2.1466/gallon.

“There’s little dispute that there’s been seriously divergent views when it comes to energy, with petroleum having great concerns and natural gas having none,” said Jay Levine, a broker with enerjay LLC. “Again the case can be made that if not for rising petroleum, natural gas…would be a lot lower. Natural gas has been plagued by pull-backs, false starts and head-fakes and has been much more susceptible than the petroleum complex because natural gas does not have the concerns that the petroleum complex has. Not to mention the fact that there’s wide enough front-to-back spreads in natural gas to drive a tractor-trailer through. Any fears, if there are any in NG, are focused on the outer months, and not on the fronts. The market has assigned premiums to the back months due to the uncertainty and potential for damage from hurricanes this year. However, every day that something doesn’t happen, the back end of the board is more susceptible to a decline.”

The broker warned that it is very important to separate what is going on now in the market from what will happen later. “From a fundamental standpoint, the market is anticipating supply/demand problems going forth, which is why the spreads are as wide as they are,” he said. “Outsider speculation in the back end of the market is another concern. With the energy markets grabbing major headlines, more outside speculation comes into the market, which makes things more difficult because that is when fundamentals matter the least.”

Levine added that the natural gas market has “the potential to double in price very quickly if something were to come along and upset the apple cart. I kind of figure that something will come along at some point. However, base building is normally a lengthy affair, sometimes taking months. Tops usually happen in days or weeks, but bottoms take longer. My belief is that one of these rallies, which have been measured by pull-backs, false starts or head-fakes, is going to actually stick. It won’t be a head-fake or a false start, it will be the beginning of something bigger.”

With little in the way of new fundamental news to entice bulls or bears, natural gas traders have been quick to follow the dynamics of crude oil traded in the adjacent ring on the floor of the New York Mercantile Exchange. For the week ended April 21, June natural gas futures stood at a lofty $8.216 and the June crude oil contract settled at a stout $75.17/bbl. Last week June natural gas plunged to $6.555 as June crude oil fell to $71.88/bbl on Friday.

Should that linkage continue, the bears may be in for a treat this week. Refiners are cranking out gasoline in preparation for the summer driving season and the thinking goes that greater supplies of petroleum products will draw the complex lower. A Bloomberg survey Friday of 40 industry players showed that 20 of 40 analysts, traders and brokers said prices will drop this week. Ten forecast prices will be little changed and 10 project an increase. U.S. refineries last week operated at their highest capacity since early January, according to a DOE report. Gasoline output jumped 4.6% to a two-month high of 8.5 million bbl/d.

Energy bulls are quick to point to the unsettled international arena with concerns over Iran’s continued nuclear activity, raising the specter of sanctions against the world’s fourth-largest petroleum producer. Over the weekend, Iranian President Mahmoud Ahmadinejad restated his plan to push ahead with uranium enrichment, defying the U.N.’s demands. The Security Council is expected this week to draft a formal resolution, legally compelling Iran to cease activities.

In spite of last week’s tumble, large speculative natural gas accounts are lowering their exposure to lower prices. The Commodity Futures Trading Commission reported Friday that noncommercials as of April 25 decreased their holding of net short natural gas (futures only) contracts to 13,440, down from 28,966 net short the week prior.

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