June natural gas is set to open 5 cents higher Tuesday morning at $2.85 even though observers are now looking at the fundamentals of supply and demand and see an oversupplied market looming by the end of the injection season. Overnight oil markets rose.

Top analysts have tweaked their storage models and see the dark clouds of burdensome supplies and an inventory dynamic stretched to its limit by the end of the injection season. "We have updated our supply-demand balances, with end October working gas in storage now estimated at 4.04 Tcf, or within range of EIA's demonstrated maximum working gas volume of 4.3 Tcf," said Teri Viswanath, director of natural gas trading strategy at BNP Paribas.

Well above-normal warmth in eastern population centers has some thinking there will be adequate demand to balance what are expected to be aggressive industry injections, but Viswanath is not convinced. "Yet even with the increase in cooling demand, the recent pipeline deliveries reflect an accelerated pace of restocking that is hardly reassuring. Indeed, based on the month-to-date storage receipts, we now see the aggregate build in storage for May outpacing last year's record.

"Based on our updated analysis, the year-on-year storage surplus will expand in May. The problem is that the industry will be hard pressed to accommodate such an overhang in storage for the balance of the season. Without significantly higher demand, the market will struggle to rebalance, suggesting the recent price rally may only be temporary. As restocking accelerates, new lows for natural gas prices will likely emerge."

Market technicians are scratching their heads as a market that the "bears had lost control of" has suddenly failed to meet near-term technical objectives. "Monday's failure in front of $2.939 (0.236 of 4.544 to 2.443) has left us with a dark cloud cover on the daily candlestick chart," said Brian LaRose, a market technician at United ICAP, after assessing Monday's near 8-cent pummeling. "While this looks worrisome, the pullback was not enough to swing the technicals to a bearish bias or take out the $2.819 (0.236). For the moment, bulls are still alive. That being said, we would prepare for a deeper retreat. At this time will be counting any pullback as corrective."

Tom Saal, vice president at FC Stone Latin America LLC in Miami, in his work with Market Profile anticipates the market will test Monday's value area at $2.885 to $2.843 followed by a test of $2.782 to $2.712. In Market Profile parlance, Saal has identified an area of "minus development below $2.712" and said in a morning note to clients the market "looks a little heavy at the moment...Minus development (lack of liquidity) an additional downside target."

In overnight Globex trading June crude oil rose 50 cents to $60.37/bbl and June RBOB gasoline added 3 cents to $2.0234/gal.