With natural gas physical prices and crude oil futures leading the way, natural gas futures gapped lower at the open bell and funneled to new three-week lows Tuesday amid speculative fund selling pressure. Two listless buying attempts by locals was the only positive for bulls, but both surges fell short of filling the chart gap up to $3.48 as sellers rushed back in to punish the market for the attempts. The June contract took the selling squarely on the chin, ending 9.5 cents lower at $3.395.

Several traders contacted by NGI Tuesday noted that the market was weaker even before the open-outcry session began. Cash prices set the tone Tuesday, led by the benchmark Henry Hub price, which lost XX cents to average XXX Tuesday. Also on traders’ radar Tuesday morning was the overnight sell-off in crude oil futures as traders began to liquidate June positions ahead of the contract’s expiry Tuesday afternoon. After finishing with a modest gain in trading Monday, June crude was hit hard overnight and then again Tuesday, settling an even dollar lower or 3.5% at $27.33. By comparison, the 9.5-cent decline in June natural gas represented only a 2.7% drop.

With the probability that gas demand will pick up as temperatures inevitably rise with longer days, many traders wonder if the weakness in cash prices has been a little overdone. That, coupled with the potential for a rebound in crude oil futures when the July contract takes over as prompt month Wednesday, had fundamental traders Tuesday looking for a little short-covering rally in natural gas futures.

However, crude’s chances for a rebound received a blow to the belly Tuesday night when the American Petroleum Institute announced that a shocking, 5.5 million barrels of oil was added to U.S. stocks for the week ending May 17. Expectations had centered on a decline of 2-3 million barrels, and last week the API said that 7.4 million barrels had been drawn from reserves for the week ending May 10.

While the natural gas market’s fundamental situation remains mixed, the technical outlook turned negative Tuesday. After settling beneath key support at its 40-day moving average of $3.517 Monday, the June contract broke decisively lower Wednesday, prompting speculative fund traders to head for the exits, floor traders said. And while it would not be entirely impossible for the market to right itself Wednesday and move back above resistance at $3.48 and $3.52, it is more likely prices will continue lower to fill in the April 11-12 chart gap at $3.245-250, technicians agreed.

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