Resting and regrouping appeared to be the themes Wednesday as June natural gas traded a slim 7-cent range before closing out the day at $7.730, up 1.2 cents from Tuesday's close.

"Things were definitely quiet out there," said a Washington, DC-based broker. "I believe a 7-cent trading range is pretty much the description of low volatility. Meanwhile crude was all over the block, sometimes unchanged, other times down a little over a dollar. I think the general tenor of the oil markets is affecting natural gas on occasion. Whenever the hysteria due to the gasoline run-up takes over, natural gas gets pulled along with it. However, when petroleum turns and collapses, it really doesn't affect natural gas very much at all."

Despite the recent media hype over the summer driving season with rumors of $4/gallon gasoline, June crude traded a $63.05/bbl to $65.50/bbl range on Wednesday before settling at $63.68/bbl, down 72 cents on the day. June gasoline finished out the day approximately 2.5 cents lower at $2.22/gallon.

The broker noted that he believes the recent natural gas futures market range has shifted a bit. "We seem to be holding in this $7.700 area over the last few days. Looking at the charts, we have had an advance with two significant rally days in the move that started back on April 19 from $7.390," he said. "We got all of the way to $7.930, but over the last three days we have come off a bit, although not impressively at all.

"The question now is will we collapse back down to the $7.30s or will something come along weather-wise to push us back to $8. With all of that said, I think we have officially left the $7 to $8 range that we have been in for some time. I think we have tightened that range to $7.30 to $8. The bigger question is are the bulls or bears gathering their strength here. Someone is going to come out and take care of the direction eventually, but at the moment we have no real cooling demand and nothing on the near-term horizon."

The broker noted that while the longer-term question of supply reliability during summer heat and storms is still favoring the bulls, he believes the more immediate term holds lower prices. "In the very short-term picture, I still have a slight bias to the bearish side," he said. "This little rally of the last couple of weeks has run out of steam and we will probably resolve lower, but I don't think we will head dramatically lower."

Technical traders suggest that Tuesday's June contract setback of 14.5 cents to $7.718 embellished the bearish case. "Within the miniature universe of the last 16 weeks spent within the tiny $7 to $8 trading range, Tuesday's sharp decline and weak close was a major victory for the bears," said Walter Zimmerman of United Energy. He added the healthy decline was a confirmation that Monday's high of $7.930 was not only a significant candlestick market top, but also an important resistance point.

"We continue looking to ratio retracements of the $7.250 to $7.930 rally for potential support. The 0.618 retracement is $7.510 and the 0.7862 retracement is down at the $7.395 level. The larger question is whether we get anything resembling an actual seasonal retreat or only more trading range congestion," he noted.

Traders see the Bank of Montreal options trading losses as having a minimal impact on futures. "The Bank of Montreal losses don't look to have had much influence on the market as a whole," said a New York floor trader. He added that the bank had been long options volatility and those positions simply expired against it. "Since that was the case they didn't have a lot of positions to unwind," he said.

Many still are unsure exactly what position the bank had. "From all accounts, I can't understand from anything I have read how exactly they messed up," said a New York energy broker. "They claim that low volatility hurt them, but I don't know what they did. The amount they lost is not all that much to get worked up about. It certainly wasn't Amaranth. Maybe it resulted in a 20-cent rally in futures on Friday. Someday, we might have a 20-cent decline for no reason, which would be whoever was long finally cashing in."

The focus Thursday morning will be on the Energy Information Administration's storage report for the week ended April 27. The ICAP options auction Wednesday afternoon came up with a consensus expectation of an 84.5 Bcf build. The number revealed Thursday will be compared to last year's 56 Bcf injection and the five-year average build of 54 Bcf.

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