Shaking off Tuesday’s price slide, the natural gas futures market on Wednesday moved back to within striking distance of last week’s peak as traders were more impressed with the price gyrations in crude oil futures than the somewhat bearish short-term outlook in natural gas.

The June contract finished at $6.455, up 30.1 cents for the session and within striking distance of last Thursday’s top $6.52. At 117,699, estimated volume was hefty for the third-straight session this week.

“The [EIA] crude data released [Wednesday] was bearish and crude oil turned lower before rebounding right back up,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “Natural gas seems to have no mind of its own and is moving in lockstep with crude,” he said, noting that there is not a great deal of fundamental justification for the apparently high correlation between these two markets.

Others were also surprised by the ability of natural gas to rally just a day after sifting lower. “The natural futures market took a thumping on Tuesday when the petroleum complex turned lower taking the sympathy vote with it,” said Tim Evans of IFR Pegasus in New York. “There may be more to come on both fronts though, so we wouldn’t be too quick to shrug off Tuesday’s drop as a complete decline. Not only could bearish petroleum data drag crude lower Wednesday, but Thursday’s natural gas storage report could prove neutral to bearish as well,” Evans wrote in a note to customers Tuesday evening.

Looking ahead to release of fresh storage data, industry estimates are calling for an injection of 90-95 Bcf. If realized a build of that magnitude would be mostly inline with the year ago analog of 90 Bcf. Citing stronger cooling demand requirements last week, Evans favors an injection figure more in the 75-85 Bcf level, which he notes would be on par with the 80 Bcf five-year average refill.

With the market back within striking distance of last week’s high, Ed Kennedy is exhibiting caution in his price prognostications. “This market is still a work in progress. We are still in the uptrend, and I would not be surprised if we tested back up to $6.52. But if it fails up there again, the bulls might want to take a cautious approach to the market.

Should the market move above $6.52, Kennedy would not rule out a move to much higher levels. Accordingly, he suggests buyers might want to purchase the option to buy gas at levels at or just above the current level. “Why lock in your price here by purchasing futures when you can purchase call options. With volatility at roughly 35% options are relatively cheap right now. Buyers can create a win-win scenario by purchasing call options. If the price goes higher, you are protected, if prices go lower, you are only out the option premium,” Kennedy said.

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