Natural gas bulls were pleasantly surprised Wednesday as futures prices were able to hold on to opening gains. After opening at $6.950 the April contract shot as high as $7.130 before selling appeared to knock the closing price down to $6.953, up a healthy $0.085 on the day. The May contract added $0.092 to end at $7.103, and May crude oil futures fell $0.57 to $61.77/bbl.

"Some early buying by funds and locals sent the April contract above $7, but later in the day, trade and commercial accounts as well as other funds kept the price advance in check," said a New York floor trader. He added that the expected EIA inventory withdrawal in the 15 to 20 Bcf range seemed a bit negative. But there is a wide range of expectations for EIA's weekly storage report.

As little as 15 Bcf to as much as 70 Bcf could be withdrawn. The ICAP derivatives auction revealed a consensus withdrawal of 25.5 Bcf in trading after the close of the Nymex day session. Bentek Energy estimates that the withdrawal will be 40.9 Bcf. Prior to the release of the storage data Thursday morning, a weaker open is expected. Traders are already looking ahead to next week's storage number because of the widespread cold weather this week.

The local trader said that a number of other locals have been "chopped up" in recent sessions and are turning their attention to sales of the October 2006 contract against purchases of December, January and February 2007. "They are also short May against the winter delivery months," he said.

In trading during the post close on Wednesday, prices eased. "We are looking at an open 2 to 3 cents lower Thursday before the EIA number comes out."

Longer-term traders have been studying the relationship between nearby futures and the more distant winter months. "We have customers that are looking at storage plays, because there is some storage space available," said a Washington, DC broker.

A storage play involves the purchase of nearby gas, placing it in storage until the high demand winter months and selling futures against it. For example, April futures settled at $6.953 well below December futures at $10.176. Storage costs typically run about $0.20 per month, so an operator could realize a profit of $1.62 on the eight-month buy-and-store transaction.

Market technicians Wednesday were looking for the market to make a key test to determine if last week's rally, which sent April futures as high as $7.370, could shrug off recent weakness. For the moment the bulls are still in the driver's seat.

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