April natural gas futures threw caution to the wind and jumped higher in active trading Thursday, building on Wednesday's formidable rally. April futures Thursday rose 16 cents to $7.320, and the May contract added 17 cents to $7.435. May crude oil futures vaulted $2.08 to $61.69/bbl.

The Energy Information Administration (EIA) reported a surprise increase in inventories of 17 Bcf, well above the estimate of most traders calling for a small withdrawal to a modest build. Broker Fimat was looking for supplies to fall by 3 Bcf, and a Bloomberg poll of 22 analysts revealed a median withdrawal of 3 Bcf also. The ICAP derivatives auction showed a consensus build of 14.5 Bcf.

April futures made their low of $7.140 shortly after the 10:30 a.m. release of inventory data, but from that point on surging prices in the adjacent crude oil and petroleum products rings tugged natural gas futures higher.

Traders sense a change in outlook. "A number of stops went off as prices rose, and there was both scale-down selling and scale-up buying. Some traders were chasing prices higher," said a New York floor trader. He suggested that it wasn't just a case of holders of short positions covering to minimize losses, but "you get the feel that there are traders here who are making an effort to get long," he said.

Healthy buying or not, many are convinced the natural gas market is just see-sawing back and forth until fundamental developments in the form of a change in the weather outlook or an aggressive tropical storm forecast shake prices loose. "There is a trading range mentality in natural gas and the petroleum products as well," said a New York broker.

From the broker's perspective the natural gas market is looking at the macro effect and major funds are buying natural gas as part of a strategy of being long commodities overall. "Also, the normal sellers are reluctant to sell. That's the key. We don't have the sell orders on our desk that would normally help push the market lower," he said."Trade sellers are our major clients and they are not aggressively selling. They are not selling like they have in the past, for they have seen profit potential leave by selling early."

He added that many of the hedge programs are hoping for higher prices, and they are sitting back and selling only a little here and a little there. "At $7.30 how many producers planned for that in their budget last year? We know its better than a lot of producers planned for, but even if natural gas got to the top of its $6.50 to $8.00 trading range, these hedge programs would not kick in."

The 17 Bcf injection was a far cry from last year's 28 Bcf withdrawal and the five-year average pull of 64 Bcf. However, traders were not too concerned with the report as the April futures contract continued to build on its gains from Wednesday's rally.

As of March 16, working gas in storage stood at 1,533 Bcf, according to EIA estimates. The build trimmed the current storage deficit to last year at this time to 279 Bcf and boosted the surplus over the five-year average (1,294 Bcf) to 239 Bcf.

The Producing region did the heavy lifting by injecting 20 Bcf into underground stores while the West region chipped in 7 Bcf. Still reeling a bit from last week's cold, the East region withdrew 10 Bcf.

"What the market is showing us Thursday is that it really doesn't care whatsoever about the storage situation right now," said Steve Blair, a broker with Rafferty Technical Research in New York. "I thought getting an injection of 17 Bcf would have smacked this market down pretty hard, but that was not the case.

Blair also added that Wednesday's rally was really no surprise, but the fact that it was a 25-cent move was. "We tested out that major support area around $6.800 quite a number of times. If we had penetrated we probably would have seen a pretty good move to the downside, but after something like eight failed attempts at that level, we expected a bounce to be coming," he said. "However, I did not expect it to be that large, but after learning that there was a lot of fund buying in the May contract, it kind of explained things a little bit."

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