Natural gas futures on Wednesday showed there is nothing like the first regular trading session of a new prompt month to turn the tides of market direction as the July contract rebounded 21 cents on the day to close at $7.941. The positive day Wednesday put a halt to the string of seven consecutive sessions of lower closes, which resulted in the June contract's expiration Tuesday at $7.591.

In its first regular session action as front month, July natural gas traded as low as $7.820 before almost punching above resistance at $8 with a high on the day of $7.995.

"I think most of what we saw Wednesday was the fact that we just tore another page off the calendar," said Tim Evans, an analyst with Citigroup in New York. "The recent trading leaves the impression that we have been trying to push the log down under the water over the last number of sessions and on Wednesday it bobbed back up. Some of the talk about a tropical depression possibly forming serves as a reminder that hurricane season is now here" (see Daily GPI, May 30).

"What we have is the ongoing battle for control of the market. The bears were enjoying the ride lower and now the bulls are making their counterattempt." Evans said the current storage situation also plays bearish or bullish depending on whose eyes you are looking through. "Is the storage glass half empty or half full? We've still got this short-term bearish storage pattern in play when comparing current storage levels to the five-year average, but current levels are at a deficit to last year's levels. I tend towards the comparison to the five-year average because I believe the year-on-year comparison says more about the one prior year than it does about where we are today. From a statistical point of view, I find the year-on-five-year comparison being a little bit stronger. I also find that last year's storage level was more of an indicator of the warmer-than-normal winter that preceded it."

Looking at Thursday morning's storage report, Evans said he is expecting an injection of 115 Bcf when the Energy Information Administration releases data for the week ended May 25. A Reuters survey of 21 industry players produced an average injection expectation of 105 Bcf. The number revealed Thursday will be compared to last year's 81 Bcf injection and the five-year average build of 86 Bcf.

Some of the top traders anticipate longer-term prices to stabilize through the summer. They point out that the supply deficit relative to last year continues to narrow. "We look for this deficit to level during the month of June and to possibly expand on any early hurricane activity or should above-normal temperature trends remain intact through next month," said Jim Ritterbusch of Ritterbusch and Associates.

While the 1,946 Bcf in storage as of May 18 is well ahead of the five-year average of 1,612 Bcf, supplies are still significantly less than the 2,151 Bcf from a year ago. Even though year-ago levels were seen as overly healthy, the current deficit to last year's level has Ritterbusch looking for prices not to weaken during the summer. "Currently, the 12-month strip is trading about 7% above a year ago, a premium that we view as justified given the smaller supply. Going forward, we look for market surprises to fall toward the bullish side, and we expect a supportive lift from the petroleum complex once this ongoing price slide runs its course during the next few days," he said.

Short-term traders are circumspect. A New York floor trader noted that everyone was bullish up until the last week when there were numerous technical levels that were tested. "I can see the July contract testing $7.61, but traders are still very bullish the back end of the summer strip, August and September," he said.

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