Coming off of Monday’s venture lower, June natural gas futures on Tuesday experienced a little bit of a short-covering rally as traders continued to search for relevant fundamental news. The prompt month stayed within a range from $6.130 to $6.320 before settling at $6.252, up 12.9 cents on the day.

“All we saw on Tuesday was short-covering,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “We may even get up to $6.50, but then it is going to run into a brick wall. I view Tuesday’s action as a technically-driven short-covering rally. We made the lows here in the summer months and there is a fair amount of utility buying, which gave us some support and caused the short-covering.”

The broker noted that crude “was all over the lot” on Tuesday. After shedding $2.63 on Monday, June crude bounced around on Tuesday before closing at $69.53/bbl, up 12 cents. “Crude’s strange movement on Tuesday made people nervous and added background noise for the natural gas complex,” Kennedy said.

Looking at the market’s near-term prognosis, the broker noted, “The weather situation is the key…, and what we are seeing is that it is not going to give us any big spike in demand until at least the end of the month.” He added that there is probably a little more downside to the move. “I think there is a good chance we will test support at $6…, and we might even get below that number by a couple of pennies. However, you have to remember that end-user buying is out there, and the $6 level is bedrock-type support.

Looking at the three-day price drop of 77.7 cents that ended Tuesday, top natural gas traders don’t see anything new. “The price plunge didn’t necessarily represent fresh fundamental input, but was reflective of an ongoing bearish supply-side situation that has kept this market vulnerable to fresh selling as chart support points have been triggered,” said Jim Ritterbusch of Ritterbusch and Associates. He added that his analysis showed the next support level at $6 and suggests that will be tested before the end of the week. “However, we are still viewing a violation of this round number support as a limited possibility without significant assistance from lower petroleum values.”

Fundamental analysts do not see $6 for any extended period of time. According to a study done by JPMorgan, increasing supplies of natural gas and smaller-than-expected industrial demand will help keep natural gas prices in a range from $6.50 to $7.75 per MMBtu in the “near term.”

“Our contention is that the large influx of industrial demand that was expected by some parties as gas prices declined through the $10, $8 and now $7 per MMBtu levels is not likely to materialize unless gas prices dip to levels that could potentially displace coal-fired applications,” they said.

Use of natural gas to generate electric power for air-conditioning load isn’t likely to surface in major eastern energy markets anytime soon. The National Weather Service in its latest six-to-10-day forecast predicts cooler than normal or normal temperatures for a triangular area from North Carolina to northern Wisconsin to Maine. However, a large majority of the central part of the country and the Southeast is expected to record above-normal readings.

Following Monday’s session, Phil Flynn of Alaron suggested buying June natural gas at $5.99 with a stop loss order at $5.87.

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.