Unable to capitalize on the recent momentum higher and break out of the long-term $7-8 trading range, natural gas futures bulls found no follow-through buying for their cause Tuesday. After trading between $7.680 and $7.855, June natural gas ended up closing at $7.718, down 14.5 cents from Monday's close.

"The story remains the same," according to one New York broker. "While most people expect the breakout to come to the upside, resistance up near $8 is pretty solid for the time being and no one really has a line on when the move will come. That is the million-dollar question right now."

Some traders saw Monday's $7.930 high as another test of the upside parameter, which as per the trend brought in the selling. With a warmer than normal summer and an active hurricane season in the Gulf of Mexico expected (see related story), traders think the related move higher might wait until a little later in the spring.

"All we are doing here is bouncing around within a range," said Ed Kennedy of Commercial Brokerage Corp. in Miami. "We are still in this trading range and it is not going to change in the near term. We are building a huge base, but as to when we are going to break out to the upside, that is still an unknown. We got up to $7.930 Monday, which qualified for another test of the upside, so now we are going to test the downside. The only thing different is that support is starting to rise a little bit here. I would be a buyer at anything from $7.500 or lower.

"We are looking for that breakout because in addition to what is expected to be a hot summer, all of the forecasting models are calling for an active hurricane season. The European, AccuWeather, Canadian and National Weather Service models are all saying this Atlantic hurricane season is expected to be more active than normal with more powerful storms and that Florida and the Gulf of Mexico are open for business. There seems to be a straight consensus, which probably means we won't get anything," he joked.

Traders counting on a significant price trend either higher or lower may have to be patient. In the short term, natural gas markets are likely to take most of their guidance from fluctuations in petroleum markets and weekly storage figures.

"About a month from now, summer temperature forecasts as well as updates to the hurricane outlook will take on greater clarity and will begin to exert a much larger influence on price," said Jim Ritterbusch of Ritterbusch and Associates. He added that until then further price consolidation and relatively narrow daily trading ranges appear likely. "The physical market appeared to provide a price prop in [Monday's] trade with numbers quoted above the $7.70 area. However, cash trading becomes thin at this time of year and we would generally expect the spot trade to seek direction from the paper markets," he said in a note to clients.

According to NGI's Daily Gas Price Index spot gas at the Henry Hub averaged $7.71 Monday, up 27 cents.

Reports of large trading losses involving natural gas options at a Montreal bank had traders skittish on Monday (see Daily GPI, April 30; May 1). "Traders didn't want to get caught up in it, and trading volume was diminished," said a New York floor trader. "If traders are looking at the market from a technical viewpoint, then all of that has to be put on hold until the market sorts itself out. If you are a technical trader, you want the market to be uncluttered with events like bank trading losses."

Kennedy said there are still some unknowns surrounding the bank's losses. "I really don't know what their position was," he said. "It appears they were long volatility and lost. If you have an opinion, that's fine, but it sometimes costs you. They should stay in the business of just writing swaps and stay out of the business of taking actual positions, especially positions that are as directional as the ones it appears they took. I think we will see more of these down the road. Take a look at the hedge funds."

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