Trading within a slim 10-cent range for the session, June natural gas appeared to be having a hard time choosing a direction on Monday. After rebounding off support in the $6.595 to $6.60 area a number of times during the session, the prompt month resolved to explore higher instead. Following a late session push that coincided with a strong move in petroleum futures, June natural gas finished Monday at $6.674, up 5.3 cents.

June crude put in the strongest showing on the petroleum side, increasing $1.07 late in trading on Monday to close at $52.03/bbl. June heating oil finished less than a cent higher at $1.4402/gallon.

“I think the market is essentially viewing the cooler than normal temperatures for last week as likely to get us one more supportive storage figure this Thursday,” said Tim Evans, an analyst with IFR Energy Services. “However, there is no bullish follow-up to that because it is relatively mild this week and is expected to be warmer than normal next week across the northern U.S. I think people recognize that this Thursday’s report will be supportive, but that there is no follow-through next week. If the market does rally on this upcoming report…it’s a selling opportunity.”

As for the downside, Evans said he thinks one of the only things propping up natural gas futures is the fact that crude is staying mostly above $50/bbl. “That helps to preserve this sense that natural gas is relatively cheap as a fuel, which could kind of keep some sort of a floor underneath us here even though there is no actual physical tightness involved,” Evans told NGI.

He added that since the beginning of April natural gas futures have looked like they were in a downtrend, but now the market appears to be stuck within a price channel. “We are kind of walking sideways across this channel, which we could keep doing for another week before we have to really make a decision on whether the downtrend will hold.”

Evans noted that while there have been bullish indicators such as the National Weather Service’s warmer than normal summer forecast and Colorado State University’s above-average hurricane prediction, none of that is concrete. “These are in the realm of 60-65% probability,” he said. “It is not like either one of those is a sure thing.”

Evans noted that even if the Atlantic hurricane season turns out to be another active one, that doesn’t automatically signal a supply crunch. “Recent active seasons have only resulted in shut-ins of 30 Bcf or so on a cumulative basis. You’re really going to need the storm of the week going through the Gulf of Mexico in order to rival the volume of production lost last year.” Evans noted that despite the damage to oil and natural gas infrastructure in the Gulf from Hurricane Ivan in 2004, natural gas storage still sits almost 300 Bcf above the five-year average.

As for the next step for natural gas futures, Evans said his outlook focuses on his fairly confident bearish view of the crude market. He noted that current crude inventory stands at 327 million barrels, a far cry from the Sept. 17 bottom of 269.5 million barrels.

“In crude, you’re in an uptrend here that is coming up on its eighth anniversary and at some point people are simply going to have to accept that you don’t stay above $50/bbl without having some kind of fundamental support,” Evans said. “People keep saying things like ‘demand is outstripping supply.’ My answer to that is ‘Oh, really?’

“If you take that psychological crude support away from the natural gas market, then that natural gas storage surplus that we currently have looks a lot more compelling,” he said. “I think the natural gas market is eventually going to either find a way to climb down the ladder or fall off completely.”

Natural gas traders are having to deal with a complex interaction between markets. Though petroleum markets at present are taking a short breather from prices in the upper $50s/bbl range (May crude oil traded at an all time high of $58.28 on April 4), some analysts believe that strong crude oil futures prices are likely to continue. Meanwhile, natural gas fundamentals show mild weather and burdensome storage levels. That creates a bit of a quandary for natural gas traders: Sell the market based on pure supply and demand factors, or buy the market in sympathy with crude oil futures prices.

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