With a modest 4.1-cent advance and $2.291 close Tuesday, February natural gas futures took another baby step toward what analysts and technicians believe could be the formation of a price bottom. That may seem like a bold prediction considering the overwhelmingly bearish fundamental picture. But after lying dormant during the downward price spiral of 2001, and in consideration of the large speculative short position, bull traders are cautiously rearing their horns once again.

Traders were again surprised by the sheer fact the market did not move lower Tuesday. At $2.26, the market notched a higher low for the fourth straight session Tuesday. However, the bears won a small victory by preventing the market from making a higher high.

Traders agreed that the more than 47,000 net shorts currently held by non-commercial traders stand as a compelling reason to eschew the short side of the market, at least ahead of the American Gas Association storage report to be released at 2 p.m. EST today.

According to Tim Evans of IFR Pegasus in New York, this record level on speculative net shorts represents a “substantial threat” should a short covering rally occur. “On the other side of the equation,” he continues, “storage remains quite high and the mild temperatures last week may have limited AGA withdrawals to some 100-110 Bcf, not much different from the 103 Bcf tally a year ago.”

The common range of expectation ahead of this afternoon’s report are for a 110-140 Bcf withdrawal. Jay Levine of Advest Inc., meanwhile, calls for a 155 Bcf withdrawal, which is closer to last week’s 190 Bcf number than to the 103 Bcf tally from a year ago.

In daily technicals, Levine sees support at last week’s $2.14 low ahead of more buying expected near $2.00. In the short term, however, Levine believes resistance at $2.34-37 is more likely to come into play. If the market moves past that test, it will see additional resistance at $2.43, he reasons.

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.