With low trading volume as traders head for the exits early ahead of the extended holiday weekend, June natural gas futures continued to trade within a tight range Wednesday, ultimately closing at $7.757, down 4.4 cents on the day. The contract, which expires next Tuesday, has dropped 18.7 cents for the week following three consecutive lower closes.

In fact, the natural gas futures market has seen nothing but weakness ever since the June contract finally settled above $8 last Thursday. In the four regular trading sessions that followed, the prompt month has shed 31.8 cents. However, the real test lies ahead as the $7.70s have offered support before for the contract. Wednesday's low trade was $7.740.

While natural gas futures are off their $8.230 high from last week, some market experts point out that $7.700 natural gas is still anything but cheap. "One of the reasons natgas has been so stubbornly strong has been the desire to buy any dips, however modest, thus preventing a major slide," said Jay Levine, a broker with enerjay LLC in Portland, ME. "End-users/industrials, while recognizing that current prices aren't historically cheap, are also cognizant how historically prices can get and are doing their best not to be left out in case [that were to happen]. From a hedging perspective the logic is there -- even if the markets tend to overreact before the fact -- and suffice to say recent action has served as a suitable reminder to what could be. Little wonder then that even if the markets -- natural gas, crude, et al. -- are due for a fall and 'overvalued' that many believe the risk/reward to be heavily skewed upwards? Including me, and in light of current, possibly near-term weakness."

Levine said he planned to stick to the charts, noting that the possibility exists that with buyers buying any dip, there "could be a case of musical chairs and when the music (buying) stops, there'll be no more chairs (and support) left. But we'll have to see, especially since the complex and charts are showing -- or getting closer -- to what I believe could be significant points of reference (and better signs of the next direction)."

For short-term support, Levine said he is eyeing $7.715, followed by $7.650, $7.455, $7.050 and then $6.750. As for resistance, he sees $8.045, followed by $8.400, $8.750 and $9.250. With regards to Tuesday's expiration, the broker noted he still thinks "there's a shot June natural gas settles closer to $7 than $8, even if that means $7.490..."

Analysts suggest that if the market doesn't get some support from the storage figures, a downward drift is likely. "Short of a decidedly bullish surprise in the storage stats, we will look for some further price weakness through the balance of this week with the physical market providing some downward drag amidst mild Midcontinent temperatures and an expected decline in industrial load over the extended holiday period," said Jim Ritterbusch of Ritterbusch and Associates.

Taking a closer look at Thursday morning's Energy Information Administration (EIA) natural gas storage report for the week ended May 18, most industry expectations are once again looking for an injection in the high 90s or low 100s Bcf. A Reuters survey of 21 estimates is looking for an injection of 98 Bcf, while Golden, CO-based Bentek Energy said its Flow model indicates an injection of 97 Bcf, bringing stocks 9.9% below the five-year high (last year) and 20.4% above the five-year average.

If an injection of this size is realized, it will continue the pattern of stout early season injections. Last year 84 Bcf was injected and the five-year average is 85 Bcf, EIA figures show.

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