April natural gas futures rallied 19.1 cents Wednesday to finish at $7.083 as some end-users decided the $6.900 level was a prime place to cash in their chips and buy gas. While the prompt month settled higher for the first time in six regular sessions and above $7 for the first time in three, some market experts weren't ready to bring their bull costumes out of the closet just yet, even with the expectations that a significant storage withdrawal would be revealed Thursday.

After opening higher than Tuesday's close, the April contract zig-zagged during Wednesday's session between a low of $6.945 and last week's old support level up at $7.100. However, unlike the weakness seen on Tuesday, the prompt-month gains on Wednesday were protected.

"While we saw a pretty convincing rebound Wednesday, we are still moderately technically bearish," said a Washington, DC-based broker. "However, we have certainly been doing a lot more general end-user buying over the last couple of days. In fact, we have probably done more of that in the last two to three days than we have over the last two months. The question is whether this is still short-covering, or are we trying to attempt to build a bottom here. We have a ways to go before we can start talking about a bottom, seeing as how this was one up day following a string of five down days."

The broker advised that traders should wait and see what comes from this. "If you look at the general decline basis the April contract from up around $7.830, we've had pauses on the way down, so one up day does not a change of trend make. We still need to see some additional basing here," he said.

As for a trading strategy in the current market, the broker said people should look to the summer. "We are currently looking at ways to establish length a little bit later out into the summer. I think that is where the focus is turning and there are a number of strategies that can be employed," he said. "Our marketers are getting their end-user clients to establish at least one level of length out through the summer. With the end-of-winter storage level already being widely factored into the market at near 1.4 Tcf, all indications point to the summer being still up for grabs.

"The new big thing during this time period is looking at the hurricane potential and the La Nina versus El Nino situation, which is coming into the forefront again. Because these are the concerns that are still out there that haven't really been entirely digested by the market, I would be looking at ways to get long for the summer. This pullback from the high sevens and low eights is probably not a bad spot. If I could get in at $6.500, I would love it, but I would probably take $7 too."

Looking at the Energy Information Administration's storage withdrawal report for the week ended March 9, a number of the industry's estimates are looking for a decline in storage of just more than 100 Bcf. The withdrawal is likely to be significantly larger than last year's 59 Bcf pull and the five-year average withdrawal of 79 Bcf. Despite the wide margin, some don't believe the market should pay it much attention.

"Even if we got a withdrawal north of 100 Bcf, I don't think that would cause much of a ripple in the futures market," the broker added. "I think everyone has accepted that this large withdrawal will be the result of a cold week that was an aberration quantitatively when looking back at similar weeks over the past years. Occasionally we get one of those, but at this point it is only going to shave off a small amount of the end-of-season storage level. Is it the news that could propel bulls higher? Perhaps, but I see it as more of an excuse rather than a real reason."

Longer term, analysts are taking a hard look at recent tumbles in equity markets as having strong implications for natural gas and energy markets. "We are focusing on the equity markets because we believe they are one of the best indicators of where the world economies are headed," said Mike DeVooght, president of DEVO Capital. He believes that weak major world economies will lead to a deterioration in demand, which will lead to lower prices. On Tuesday, the Dow Jones Industrial Average tumbled more than 242 points to settle at 12,075.96.

"On a fundamental basis the world energy supply-demand picture is about as balanced as I have seen in a very long time. Therefore, any slight shift in either the supply side or demand side could have a dramatic impact on future price levels," he noted. According to DeVooght, the weak equity markets could very well be signaling the beginning of a contraction in the major world economies. Not a recession, just a moderation in the dramatic growth around the world.

Prior to Wednesday's session, DeVooght advised his natural gas trading accounts to hold short April crude oil against a long April natural gas position. End-users should stand aside, and producers should continue to hold short an April/October strip at $8 for 25% of production, hold short a summer strip at $7.60 for 50% of production and stay short a winter 2007-2008 strip at $9 for 15% of production, he said.

United Energy's Walter Zimmerman saw Wednesday as a pivotal session. Following Tuesday's failed rally attempt, Zimmerman said it was "rally or dump lower time in Natgas."

Taking a closer look at Thursday's storage report, a Reuters survey of 24 estimates is expecting a median drawdown of 114 Bcf for the week ended March 9, while ICAP's Wednesday storage options auction produced a 110.5 Bcf withdrawal expectation. The range of the survey spanned from withdrawals of 86 Bcf to 140 Bcf.

Golden, CO-based Bentek Energy said its flow model indicated a withdrawal of 110 Bcf, which would bring stocks 17.3% below the five-year high -- recorded last year -- and 11.9% above the five-year average. The flow model predicted a 91 Bcf withdrawal in the East region, a 17 Bcf withdrawal from the Producing region and a 2 Bcf pull from the West region.

Bentek's Daily Storage Range report for the week indicated a range of withdrawals from 109 Bcf to 125 Bcf with a midpoint of 117 Bcf. The company's supply/demand balance view in its Weekly Market Recap published on Friday indicated a 120 Bcf withdrawal estimate.

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