After tumbling lower for the first three hours of trading, the natural gas futures market rebounded Wednesday as bears failed to press the market down to near-term technical support. The June contract finished the session at $6.606, down 14 cents on the day but above its $6.540 low for the session.

Crude futures activity once again helped natural gas futures pick a direction on Wednesday. In a surprise to the market, the U.S. Department of Energy reported an increase in gasoline inventories, which allowed June crude to drop $2.33 on the day to close at $72.28/bbl.

Market technicians are perusing their charts for signs that natural gas futures may be in the process of forming a market bottom. “Tuesday chopped between a $6.895 high and a $6.600 low. But is it bottoming action? If we compare the price action into the $6.650 low from the 10th of April to the last three days of trading we find an uncanny resemblance,” said Walter Zimmerman of United Energy.

Tom Saal of Commercial Brokerage Corp., Miami, agreed, noting the market has exhibited choppy pattern marked by sideways trading bands punctuated by impressive rallies and retreats. “We have been going both vertically and horizontally. I think we sold off on bearish fundamentals, but I would have to say that I am becoming a little bullish now.”

His rationale for this call is based on the latest Commitments of Traders data released by the CFTC showing noncommercial traders hold a net short position of 13,440 contracts as of last Tuesday. “These will be motivated buyers should prices start to turn higher,” noted Saal in his presentation at GasMart 2006 in Denver Wednesday. Specifically, he points to the May expiry of $7.198, which he believes could be a springboard to much higher levels should an initial wave of buying press the market to that level.

But what would be the impetus to propel prices to that level? “The news of the first hurricane is worth $1.50,” he quipped. “The first hurricane that gets into the Gulf of Mexico is worth an additional $1.50.” Saal was quick to note that the official start of hurricane season on June 1 is less than a month off. Following last year’s devastating storms, the market appears very sensitive to each new hurricane forecast.

Speaking at the Offshore Technology Conference, Accuweather’s Joe Bastardi said historical patterns of hurricane activity lead him to believe that the next few years will see elevated hurricane activity in the Gulf. He predicted three or four major hurricanes in the Gulf over the next four or five years. “We’re talking the area all the way from Key West [FL] to Brownsville [TX].”

While historical data points to increased hurricane activity, Bastardi said that overpowering hurricane seasons are not necessarily required in order to have a lot of major activity in the Gulf. “The Gulf of Mexico is in its own world, especially the western and central Gulf.”

Bastardi went on to warn that 20 or 30 years from now, Hurricane Katrina may be remembered as a “warning shot” for hurricane activity to come.

Looking ahead to fresh storage data set to be released Thursday, consensus estimates are centered on a 66 Bcf build. Currently, working gas inventories stand at 1,851 Bcf and are poised to end April at the highest level since April 1991 when inventories reached a plump 2,037 Bcf.

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