After trading in a fairly wide range from $7.480 to $7.830, March natural gas futures went off the board with a bang on Monday at $7.547, down 20.8 cents from Friday’s close. The April contract, which now assumes the front-month position, was tamer in its action by dropping 10.3 cents to finish the day at $7.703.

With the winter season beginning to wind down and the nation’s natural gas storage surplus over the five-year average coming into check following three significant weeks of withdrawals, traders are now looking for the next piece of market-moving news to key the next move.

“We saw a big closing range for the March expiration Monday. It really seemed like the old days as the closing range spanned from $7.480 to $7.620,” said a Washington, DC-based broker. “I think what was key was the fact that March didn’t dump earlier in the day. It is also interesting that the April spread wasn’t so bad, which indicates that the bullish case has not completely run out of steam yet. I think it is losing steam, but the fact that April closed just 10.3 cents lower leaves the bulls not dead just yet.”

The broker noted that the recent plunge in storage supplies also should keep the bulls around in the short term. “We made it through three large inventory withdrawals that I would have expected a little bit of ‘buy the rumor/sell the fact,’ but that never materialized,” he added. “We’ve had some periods where temperatures were going to moderate to normal from below-average, which would have been another good excuse to sell the market off, but that has not happened either. Another sign that we may not be done to the upside is recent resistance tests. While the sellers came in over the past few weeks every time we approached $8, there really did not seem to be enough ammunition on the short side. It really seemed they didn’t have any more bucks to throw at the thing after using all of their momentum stalling out the move higher.

“I think we are probably into a trading range from $6.500 to $8.500. While we are running out of winter, we have also reduced the storage overhang to the point where the chances of a scenario featuring sharply lower prices over the summer due to an abundance of storage has been substantially diminished,” the broker said. “With that fear out of the market, Mr. Producer, who is naturally bullish and wants to hold on for higher prices, can now hold on. I think the producer length now feels a little bit more secure following the last three withdrawal reports that have come out.”

The broker added that the next great debate will focus on summer temperatures. “I have already heard people out there predicting a hotter summer due to the way this winter is ending. However, I am sure there will be someone else out there someplace with a report saying the exact opposite. I think this uptrend will end soon. We see it as the fifth wave of an Elliot advance, which means after this we ought to expect a substantial correction. Not necessarily a major bear market, but a substantial correction as opposed to just an interim little price adjustment.”

Market bulls are well aware that weather uncertainties and a vanished surplus relative to last year may give them the upper hand at least for the moment. After last Thursday’s hefty 223 Bcf withdrawal report for the week ended Feb. 16, 1,865 Bcf was left in storage. A year earlier 2,161 Bcf was in storage and that was enough to help pressure spot futures to a $6.450 low on March 8, 2006.

Bears have to wonder if $6.450 is really in sight with less gas in storage than a year ago. Weather, or a lack thereof, ultimately turned the tables in favor of the bears with spot futures falling to $4.050 by late September, but with spring and summer weather patterns currently a deep unknown, and no estimates yet of the intensity of the Atlantic tropical season, weather uncertainty favors a bullish outlook for the spring and summer futures contracts, traders point out.

Others see the natural gas market more influenced by the ramblings of the petroleum market. “On a trading basis we feel this past week’s (natural gas) highs represent excellent selling levels if you have not already done so,” said Mike DeVooght of DEVO Capital in a letter to clients. DeVooght contends that in the short term the direction the petroleum complex takes will be the main determinant of the direction of the gas market. “But longer term we think the gas market will trend sideways to lower in the weeks to come,” he said. DeVooght currently advises end-user clients to stand aside.

April crude on Monday put in a high of $61.75 before closing at $61.39/bbl, up 25 cents on the day.

Longer-term weather forecasts favor a bullish outlook. AccuWeather in its 11- to 15-day outlook shows a wide area of below-normal temperatures north of a broad arc extending from northern Oregon to the panhandle of Texas to the very northwest corner of Pennsylvania. Areas to the south and east of the arc are normal or above normal.

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