After watching July prices tunnel lower into expiration Wednesday, natural gas traders were content to take a breather yesterday, choosing to wait for new fundamental or technical clues instead of blindly reestablishing a position in August futures. As a result, the new prompt month had a hard time getting out of its own way, sifting sideways to close a scant 0.6 cents lower at $3.28.

Many sources contacted by NGI Thursday were still a little incredulous of the move lower on expiration day that sealed July’s fate as the first contract since May 2000 to close below $3.50. Bulls, however, have seen very little to like in this market, which has been methodically beaten lower by storage reports each Wednesday. All told, the market has injected an average of 91 Bcf a week since April. During which time prices have fallen by an average of 15.2 cents on 11 of 12 Wednesdays.

According to Ronald Barone of UBS Warburg, however, storage is not the sole culprit for these lower prices. There also are “favorable arbitrage spreads, overall lackluster temperatures, the sluggish U.S. economy, lingering demand elasticity and continued favorable nuclear generation performance,” he wrote in his weekly natural gas research note.

Looking ahead, Barone looks for this week’s storage figure (to be released next Wednesday) to continue the trend by surpassing last year’s comparable figure. Last year this week the market injected a modest 69 Bcf. Further out on the horizon, it doesn’t get any better for bulls as the subsequent four weekly comparisons are 97 Bcf, 70 Bcf, 54 Bcf, and 63 Bcf.

If this market is going to make a technical correction to the upside, there is no time like the present, according to some brokers and traders. For Jay Levine of Advest Inc., the 72-cent rebound seen June 8-12 is still fresh in traders minds. Although he looks for either August or September contracts to eventually probe beneath the $3 mark, he would not be surprised if the market were to bounce higher in the short-term. Accordingly, he would protect any newly acquired long position with a sell stop beneath yesterday’s low of $3.23.

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