In the back and forth battle occurring recently in natural gas futures the November contract logged a forth day on Wednesday as it gained 14.7 cents to close at $7.010. Despite signs that the 2007 Atlantic hurricane season is on course to be just as underwhelming as the previous year, some traders point to the market’s seasonal tendency to buy at this juncture.

“We were not exceptionally busy Wednesday, but a little pattern has formed here over the past couple of sessions,” said a Washington, DC-based broker. “A couple of days ago, it looked like we wanted to get back down and test the $6.500 to $6.800 gap that occurred when the October contract rolled into the November contract. We held right above it on Tuesday and then rallied Wednesday above it, so for the moment it looks like that gap wants to hold, keeping the support range of $6.750 to $6.800 intact. We would need to close beneath that in order to become more bearish about this market.

“For the moment we are holding. I think the big thing is there is no bearish news out there that we don’t already know about,” the broker told NGI. “There is plenty of gas, no weather, no storms and no liquefied natural gas import disruptions, but we know all of this already. The lack of a big 2007 hurricane impacting production in the Gulf of Mexico has already been factored in. While the season is not over yet, there are no promising systems even as far out as the Intertropical Conversion Zone off of Africa.”

If the hurricane season has already been written off, the question of traders then becomes why the bears haven’t been able to wrestle back control. “I argue that regardless of what the supply situation is, people become seasonal buyers of natural gas at this time of year as they prepare for winter,” the broker said. “Yes, the move has historically varied depending on storage and temperature levels, but the trend is generally moving higher at this point.”

Also adding arrows to bulls’ quivers is the Alberta royalty tax hike proposal, which traders are monitoring closely. Even without extra tax, Canada’s National Energy Board is already expecting natural gas exports to the United States to suffer (see related story).

“If that tax goes through, it is going to add to the cost of getting natural gas and oil out of Alberta,” the broker said. “In addition, we already have a strong Canadian dollar. This is all going to cause producers — who could invest money into getting more natural gas production out of Canada — not to do so. The producers would not be making as much money because the government is saying it wants 5% out of their pockets. The production pullback would be exacerbated by the fact that we are already losing Canadian natural gas production due to the oilsands. It is being funneled into oilsand production as opposed to being piped to the Lower 48.”

The broker said for the bulls to really capitalize, the market will have to settle above $7.500. Beyond that, the next resistance point is $8. “Until that happens, we are stuck between this band of $6.750 and $7.500,” he said, “but I am moderately bullish here.”

However, prior to Wednesday’s action, some top traders saw a weakening market. “We are viewing two consecutive closes south of the $7 mark as suggestive of some additional price weakness,” said Jim Ritterbusch of Ritterbusch and Associates. He believes that moderating temperatures in important East and Midwest consuming areas and a lessening chance of a tropical storm threat will lower prices as much as another 16 cents. “Temperature moderation away from recent record highs in key consuming regions combined with a lack of significant storm threat should force a challenge of the $6.700 support level [November] during the next couple of sessions while further declines toward the $6.300 area are still possible within about a one-week time window.”

Some short-term traders see the market lower as well. “It looks like $6.50 is the next level. There are some large builds coming in the next couple of weeks, but there will be some price spikes,” said a New York floor trader.

Weather bears may be in the driver’s seat in the near to mid term. AccuWeather forecasts an easing of the oppressive heat that has gripped the Midwest and East. “The summer weather will be pushed out of the East over the next few days, and a cold front overnight moved into the Northeast, bringing showers and strong storms and cooler temperatures,” said AccuWeather’s Steve Penstone. Temperatures over the next several days will drop to seasonably normal readings for mid-October; however, following the heat and humidity of last week it should feel colder. The forecaster said Wednesday’s high temperature of 83 in Washington, DC, will drop to 67 by Friday, and New York City’s high temperature of 74 Wednesday will ease to 62 Friday.

Looking at the Energy Information Administration’s (EIA) natural gas storage report for the week ended Oct. 5, a Reuters survey of 22 industry players is expecting an average build of 70 Bcf when the number is released Thursday morning. According to the EIA, 63 Bcf was injected into underground storage last year during the similar week and the five-year average build for the week is also 63 Bcf.

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