Summing up the ongoing bout of range-bound trading activity in the span of 48 hours, August natural gas futures virtually erased Tuesday’s gain of 8 cents with Wednesday’s decline of 7.7 cents as the prompt-month contract closed out Wednesday’s regular session at $4.513.

Wednesday’s pullback was a little perplexing as forecasters continued to watch the tropics, where a tropical wave could strengthen into Tropical Storm Bonnie at any time. Some producers were already evacuating personnel in the Gulf of Mexico (see related story).

According to Kristina Pydynowski, senior meteorologist, the wave Wednesday was located near Hispaniola, the island shared by the Dominican Republic and Haiti. “Intensification could occur as the wave passes across the Bahamas later [Wednesday] into Thursday night,” she said. “The wave may then take aim on South Florida, including Miami, late Thursday night into Friday.”

Pydynowski added that “all computer models” are hinting that the wave will eventually enter the Gulf of Mexico, threatening to impact the oil spill cleanup and containment operations this weekend. As of Wednesday, the range of possible landfall points in the Gulf of Mexico this weekend ranged from the Florida Panhandle to the eastern Texas coast.

Citi Futures Perspective analyst Tim Evans noted that natural gas futures tested the upside in the early going on Wednesday, but he “is still not convinced that ongoing heat and the risk of hurricanes to some 6.6 Bcf/d of production capacity in the Gulf of Mexico represent an upside potential from current levels.”

He noted that the Commodity Futures Trading Commission’s Commitments of Traders data has recently shown the funds selling with a mix of long liquidation and fresh short selling (see Daily GPI, July 20). Evans hypothesized that this round of selling will likely need to run its course before prices can rebound.

“Overall, however, we continue to see the declining year-on-five-year storage surplus as an indication that the market is tightening week by week, leaving the market that much more vulnerable to a hurricane disruption,” Evans said.

Going into Thursday morning’s 10:30 a.m. EDT natural gas storage report for the week ending July 16, Evans said he expects a 48 Bcf injection, which would be bullish when compared to both last year’s date-adjusted 69 Bcf injection for the week and the five-year average build of 64 Bcf.

A Reuters survey of 28 industry players produced a 39 Bcf to 67 Bcf injection range with an average build expectation of 53 Bcf, while Bentek Energy’s flow model projects a 48 Bcf injection, which would bring inventory levels to 2,888 Bcf. Bentek expects the East Region to inject 41 Bcf, while the West and Producing regions add 4 Bcf and 3 Bcf, respectively.

The research firm noted that a 48 Bcf injection is 4 Bcf lower than the lowest injection reported last year during the months of July and August.

From a technical perspective analysts see the bulls needing to prove their case. According to Brian LaRose of United-ICAP, spot futures need “a close above $4.787 (0.7862 of $4.923-4.288) and $5.002 (0.7862 of $5.196-4.288) to indicate the move up from $3.810 is still in progress.” If the bulls can pull that off, LaRose feels that $5.617-5.674 would be in sight. “Fail to clear resistance and we would expect the downtrend to continue. [We] see $4.106-4.015 as the next challenge for the bears on a break below $4.343 in this case,” he said.

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