The common thinking of natural gas futures traders and analysts appears to be that the market is priming for an upward reversal followed by an extended stretch run of buying; however, the timing of the switch is still anyone’s bet. Until the rebound begins, some industry experts believe the downside is still open on a limited basis, which April natural gas futures tested once again on Monday.

The front-month contract nearly breached last Thursday’s low for the move of $3.759 by trading as low as $3.766 on Monday before closing out the regular session at $3.850, down 8.2 cents from Friday’s finish. Market experts see more tests on the horizon before prices reverse higher on an extended basis.

“The natural gas market remains under some moderate selling pressure as the temperature outlook lacks sufficient heating demand to maintain a floor underneath prices,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “With prices already under $4 per MMBtu we don’t anticipate a sharp drop, but there may well be a further erosion in prices over the intermediate term. We expect this to result in an eventual long-term buying opportunity, as producers have already cut back sharply on drilling activity, but we’d like to see some evidence that output has begun to decline before betting on an upward reversal.”

Some top traders acknowledge the current weak industrial demand, but note that often the best cure for low prices is low prices. “It is difficult for the gas market to rally when expectations for U.S. industrial end-users is so bleak. End-users have shown very little inclination to be a forward buyer because they have no idea what the demand for their products will look like in the future. We might be a little premature, but we feel natural gas is searching for a bottom,” said Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm.

Technical analysts aren’t so quick to suggest a bottom, but they acknowledge that prices could move nearly 50 cents higher and not dissuade them from their bearish stance. “Our wave count suggests that the trend is still down and that last week was a bear market rest stop, not a bullish trend reversal,” said Walter Zimmerman of United Energy. “Peg $4.250-4.450 [as] key resistance. Still peg $3.520-3.420 for the next step to the downside. The only plus for the bulls is some relative strength indicator divergence.”

What happens during the upcoming shoulder months may set the tone for the market’s next move. “The biggest positive factor over the next few months will come from traditional shoulder-month dynamics, like nuclear maintenance,” said Peter Beutel of Cameron Hanover. He noted that replacement demand for natural gas will be intermittent and fluctuate as units ramp up and down, but “the best hope that this market has right now is that traders have (or will have) discounted all of these bearish factors and that prices will have fallen too far in the process. If they are too oversold, prices could take comfort from minor factors.”

Producers continue to take rigs out of service. Oil field services giant Baker Hughes reported Friday further reductions in the number of rigs drilling for natural gas. For the week ending March 13, Baker Hughes reported 884 rigs drilling for natural gas in the United States, down 32 from the previous week and down 557 from a year earlier.

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