Showing that the natural gas futures market's direction is just as confused as most people think, the July contract on Wednesday gave back the exact same 7.4 cents that it increased by on Tuesday to close at $7.608, which by no coincidence is also where the contract settled at on Monday.

After putting in a high of $7.770 in morning trade, the prompt month wandered lower for the remainder of the session, recording a low of $7.590 before settlement. Traders were quick to note that the market's spastic behavior was nothing new as the front month has continuously ping-ponged within a trading range over the last couple of months.

Jay Levine, a broker with enerjay LLC, said natural gas futures charts are in "oversold territory," but the July contract is "taking a breather" and "trailing off" from its appearance north of $8.

Turning attention to Thursday morning's storage report for the week ended June 8, Levine said the industry appears to be expecting an injection of 88 to 104 Bcf, while he is personally eyeing a 99 Bcf build. "In any event I think I might revert back to the over/under game -- selling the market over 100 [Bcf] and buying the market under 100 [Bcf]; although the reaction will likely precede the report -- and, besides, how many times does the market react in a counterintuitive fashion anyway?" Answering his own question, Levine said the market has moved counterintuitively "many times," especially during the summer or winter months.

Others are noting that some bullish fundamentals are taking a slight edge over bearish technical factors. Although the hot weather-tropical storm dynamic may suggest that price risk is to the upside, some market technicians counsel caution. "While the seasonal risk is clearly to the downside from May into September, this market is either trapped in congestion or is breaking lower in super slow motion," said Walter Zimmerman of United Energy. A technical chart pattern known as a "falling wedge" where market highs and lows trend lower may offer clues to the market's near-term direction. "When the price action within a falling wedge continues to congest into the apex area of the wedge, the outcome is more likely a trading range congestion than a sharp break lower," said Zimmerman.

He added that slow-motion rounded tops in natural gas trading are rare but not unprecedented. "The reversal lower from both the May 2004 and 2002 seasonal peaks were slow-moving rounded tops. So this is not a good time for the bulls to get comfortable or complacent," he warned.

Falling wedges and slow-motion rounded tops aside, weather bulls are likely to argue that Mother Nature is on their side. For the week ending June 16 the National Weather Service forecasts above average accumulations of cooling degree days (CDD) in the Midwest. The industrialized states of Ohio, Indiana, Michigan, Illinois and Wisconsin are forecast to receive 44 CDD, or 11 more than normal. The Great Plains states from North Dakota as far south as Kansas and Missouri are expected to endure 69 CDD, or 27 more than normal.

Further enhancing the bulls' case is the fact that water-short California power generators are using gas-fired generation to conserve water supplies. "We have been using our gas-fired co-generation plant at break-even conditions during on-peak hours and running at a small loss during the off-peak periods due to low water resources," said a San Francisco Bay area generator. He noted that hydro supplies would typically be used for peak-shaving but in order to conserve limited hydro supplies "for when it's 95 in the Bay area this summer" the company was using gas-fired generation almost around the clock.

Looking closer at the Energy Information Administration's 10:30 a.m. EDT Thursday storage report, Reuters is expecting a 98 Bcf build. The number revealed Thursday morning will be compared to last year's 77 Bcf build and the five-year average injection of 93 Bcf. A triple-digit injection would bring the 100 Bcf-plus build streak to four consecutive weeks.

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