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Fundamentals Win One for the Bulls

Fundamentals Win One for the Bulls

After cascading nearly 15 cents lower Tuesday and Wednesday, natural gas futures rebounded yesterday as traders ignored the bearish technical picture and focused instead on constructive fundamental factors. The August contract slipped at the close, but was still able to post a 2.1-cent advance for the day to $2.162.

Traders were quick to point to the Wednesday afternoon release of fresh storage data as a supportive feature in market dealings yesterday. The American Gas Association said that 69 Bcf was injected into storage last week and that figure fell short of comparisons with last year (74 Bcf) and market expectations (80-85 Bcf).

Shortly after the storage report was released, the National Weather Service put another potential arrow in bull traders' quiver when it released its latest short-lead forecast. Above-normal temperatures are predicted on both East and West Coasts. The center of the country, however, is expected to experience below normal temperatures, the NWS said. And while Tim Evans of New York-based Thompson Global Markets likens the forecast to a very rare steak, "cold in the middle and hot around the edges," he feels it might be enough to support prices in the short term.

"Natural gas has a fairly clearly defined bearish technical picture. What it doesn't have is a bearish fundamental picture to sustain it." Where have we seen this before, Evans asks. "Crude oil futures-after falling for most of the month of May without any really truly bearish fundamentals-rebounded $2.50 off the lows. He went on to explain that while most fund traders had plenty of incentive to sell the market based on pure technical factors, there are those of them that resisted the temptation because of the bullish fundamental scenario.

It remains to be seen whether natural gas will receive the buying support that crude oil did, and Evans admits it will face some major hurdles along the way. The first one will come in the $2.22-25 area, which corresponds with prior lows from June 21 and 28. If the market is able to move through that level, Tuesday's high of $2.325 will be the next level of resistance, he said.

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