What a difference a week can make. After putting in an $8.210 regular-session high on Monday, July natural gas futures came full circle by Friday in reaching a low of $7.650 before settling at $7.663, down 16.2 cents on the day and 21.5 cents lower for the week.

During the latter part of the week, it appeared that the market was forced to finally realize that there is no lack of gas in the ground. Thursday morning's report that 110 Bcf was injected into storage for the week ended June 1 marked the third consecutive week of 100-plus Bcf injections.

"The market is finally reacting to the fact that we have more gas than we know what to do with right now. I am hearing from the people I talk to that we can expect another 100-plus Bcf injection for the week ended June 8," said Steve Blair, a broker with Rafferty Technical Research in New York. "The market is also realizing that while we are officially in hurricane season, we are not going to see anything serious for a while. The market shouldn't have been as high as it was the previous week and it still shouldn't be as high as it was this past week."

Blair noted that this is only the second time on record that the United States has had more than 2 Tcf of gas in the ground before the end of May. Last year was the first time it happened. "It took a while for the market to either recognize this fact...or the factions in the market that had been trying to keep this price propped up finally ran out of steam."

Looking ahead, Blair said $7.630 is his first major support number with the next level coming in around $7.550 to $7.500. "Unless we get some sustainable hot weather or a hurricane in the Gulf of Mexico, I think the market is going to test out those lower levels," he added.

Citigroup analyst Tim Evans said he does not believe the bulls are finished here. "The natural gas market seeing follow-through selling after Thursday's sharp decline made it clear that the late rally above $8 was not going to be the time when fund managers are forced to abandon their bearish stance," he said. "We're not abandoning our bullish view either, though, as summer heat and longer-term hurricane risk still seem likely to spark a more sustained round of short-covering at some point. In the meantime, the market is adhering to a well established trading range."

Summer heat indeed. On Friday, AccuWeather.com Chief Long-Range Forecaster Joe Bastardi said air conditioners this summer will definitely be "getting a workout" in most regions of the country, with the heavily populated Northeast expected to be especially hot (see related story).

The July contract's 25.5-cent tumble Thursday following the release of bearish inventory figures had technicians scurrying back to their charts to determine if lower prices are yet to come or if another lunge toward the $8.230 Tropical Storm Barry-inspired high might be in the works.

"On Thursday [July] natural gas fell to a $7.810 low and a very weak close with no hint of bottoming action," observed Walter Zimmerman of United Energy. Prior to Friday's trading, Zimmerman's prediction of a $7.765 test proved to be psychic, but in the longer term, he sees even more danger ahead for the bulls. Zimmerman is an adherent of retracement analysis and suggests that a much larger down move might be in the making similar to the $9.050 to $5.740 decline the market staged between Nov. 30 and Dec. 27 last year.

"The real downside risk here is that the $5.740 to $8.230 rally completed the B wave bear market correction of a $9.050 to $5.740 decline. The minimum implied downside target for this wave count would be the $6.190 area," he said. The market correction Zimmerman referred to is an A, B, C correction, or a down, up, down movement, in prices. The B wave up to the $8.230 high reached Monday would be followed by a C wave down to $6.190, according to Zimmerman's analysis.

Other traders don't have quite such an elaborate rationale but see lower prices nonetheless. "You have to figure the market is going to test $7.50 because there have been some pretty good injections, and there will be some more coming," said a New York floor trader. He added the market "had its chance" at the $8.230 number to break through resistance and it wasn't able to do it. "Now we are looking for the market to test down to $7.50," he said.

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