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Analysts Hint at Oil Price Support; June Gains

June natural gas futures rose Tuesday as analysts saw the gain as consistent with movement within the market's prevailing price parameters. Prices may take some guidance from the oil markets during a time when weather-driven fundamentals have minimal market-moving capability. At the close June had gained 9.2 cents to $4.246 and July added 8.7 cents to $4.303. June crude oil continued its journey higher rising $1.33 to $103.88/bbl.

"This market appears to have hitched a ride on the coattails of the petroleum complex during the past week and any disconnect will likely be forced by Thursday's weekly EIA [Energy Information Administration] storage numbers," said Jim Ritterbusch of Ritterbusch and Associates. It was his observation that Tuesday's trading was "usual ... price consolidation with action generally contained to the lower half of yesterday's range. More of this type of price action could develop tomorrow [Wednesday] especially if the petroleum complex maintains a northerly course. However, without much assistance from the weather factor, upside follow-through will likely await Thursday's supply numbers and Friday's rig count figures."

Flooding along the Mississippi River may threaten oil supplies and keep oil prices headed north as the Mississippi River Corridor is well populated with refineries and petrochemical plants. "This could affect our ability to load barges and ships at some of the docks at our Geismar, LA, and Norco, LA, facilities," said Shell spokeswoman Jill Davis.

Weather remains problematical for natural gas bulls. MDA EarthSat in its morning six- to 10-day forecast predicted below-normal temperatures south and east of an arc extending from Virginia to central Wisconsin to western Louisiana, above-normal temperatures in a ribbon east of the Continental Divide extending from Montana to New Mexico, and below-normal temperatures centered over California, Nevada and Oregon. Changes to the forecast, however, are minimal and "most of the changes to today's map are more progression based than major day-on day-changes," the firm said.

Additionally "some help from a positive PNA [Pacific North American pattern] should help direct the cooler air into the Southeast. A lack of extremes should generally limit both heating and cooling demands, however. While there are still some differences on exact timing and intensity of the air masses, the overall pattern is in fairly good agreement among the models..."

Thursday's supply numbers on the surface appear bullish. Kyle Cooper of IAF Advisors in Houston and Tim Evans of Citi Futures Perspective both forecast a storage build this week of 73 Bcf. The five-year average is 90 Bcf and last year 93 Bcf was injected.

According to Ritterbusch, the mild weather could be used as an opportunity for large traders to reload on the short side. "We are still proceeding on the assumption that the large speculators will generally be adding to their short holdings with little threat from a sudden shift in the temperature forecasts. Unlike most of the commodity space, last week's natural gas down move appeared driven by fresh speculative accumulation rather than liquidation and we look for the hedge funds, money managers, etc. to maintain a strong preference for the short side through the rest of the shoulder period."

If his assessment is correct, natural gas futures are likely to fall another 15 cents, but an outright short position may not be the way to go. "Notwithstanding today's price advance, we still see downside price risk to about the $4.06-4.10 zone where we still expect staunch support. In addition to probing the long side within this area, we will also be looking to establish long summer-short winter bull spreads that should act as a proxy for an outright position."

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