Gas futures extended Monday’s gains on Tuesday as market participants covered short positions and also responded to the Northeast heat and Tropical Storm Claudette in the central Caribbean. The National Hurricane Center upgraded what had been a tropical wave directly to a tropical storm on Tuesday. The August futures contract ended the day up 12.2 cents to $5.503, not far from its daily high, but opinions were mixed on the market’s direction for the remainder of the week.

“The gist of today’s action was the funds short covering and locals doing a lot of buying and pressing the market to the upside,” said Tom Saal of Miami-based Commercial Brokerage Corp. “I think the storm hype probably kept the sellers at bay.”

Saal noted that the last Commitments of Traders report from the Commodity Futures Trading Commission showed the non-commercials, or funds, net short 3,690 contracts, but more importantly it also showed commercial hedgers net short 15,224 contracts. “That means both large commercials and non-commercial speculators were net short, and markets cannot support a majority opinion,” said Saal. “It was an unstable situation, and that’s why we’re rallying.”

He said key resistance is at $5.55, which was the low on June 18. The next level of downtrend resistance is around $5.68.

As usual, a lot depends on the weekly storage injection number on Thursday morning. Early predictions show a wide potential range of 85-110 Bcf. Last week’s report showed a 97 Bcf injection, which was lower than expected and lower than the previous four weeks.

“My guess is there will still be a strong injection of about 98 Bcf,” said Saal. “Some people are expecting 105-110 Bcf, and if it comes in at 98 they are going to think that it’s bullish.”

The other major event to watch obviously will be the strength and direction of Tropical Storm Claudette. Weather 2000 said Tuesday afternoon that the storm has “three small hurdles in front of it, the first of which it has already surpassed: closed, low-level circulation development; enduring southerly sheer from Venezuela (almost past this as well); and steering clear of, or withstanding, any terrain/topography detriment to core structure as is approaches mountains of Hispaniola, Jamaica, Cuba and possibly Yucatan.

“Other than those impediments, the environmental road ahead looks very favorable for further development, and Claudette has a sizeable ‘runway’ to intensify and develop,” Weather 2000 said. “If momentum and inertia were the only vector variables to contend with, then a Gulf of Mexico/Yucatan entry (Friday early-AM) would be almost guaranteed, but we believe Claudette will slow down, with a slightly more capricious motion. At these early stages, this still leaves a rather large range of path possibilities open, ranging from the Yucatan to the Bahamas, which are not mutually exclusive of each other (i.e., hitting Yucatan and then veering back toward Bahamas).”

The storm is the only real bullish factor in the market right now, according to Tim Evans, futures analyst with IFR Pegasus. “I think the temperature outlook is mixed,” he said, noting that the Northeast should cool down later in the week. And he expects storage injections to continue reducing the year-to-five-year-average storage deficit.

Evans is expecting a 90-100 Bcf injection in this week’s storage report, which would outpace the 80 Bcf average injection over the last five years and the 68 Bcf injection during the same week last year. “I still don’t think there’s any great rush to jump in here and buy it,” he said.

His comment about temperatures, however, came before the National Weather Service updated its six- to 10-day forecast. The new forecast, which was a complete change from Monday’s forecast, now shows above normal temperatures expected across most of the country except for the Southeast and Pacific Northwest. If the nation gets hotter and starts using more gas to create power for air conditioning, there will be less gas available to put into storage and the weekly injection numbers will start declining, putting further upward pressure on gas prices.

Craig Coberly of Atlanta-based GSC Energy sees this upward market move as supportive of his longer-term bullish outlook. “Under this outlook, gas is in the very early stages of a multi-month rally that will terminate significantly above the June highs.” He said a drop below $5.08 probably would invalidate that forecast and trading below $5 would obliterate it.

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