After suffering expiration-day losses in both regular and Accesstrading sessions Wednesday, natural gas futures made a feebleattempt at higher ground before ultimately slipping lower at theclosing bell yesterday. With that the May contract finished itsfirst day as prompt month with a 3.5 cent decline to $2.83. Volumewas extremely weak with just 48,969 contracts changing hands.

While some traders were impressed by yesterday’s midday rebound,others were quick to point to the market’s inability to matchWednesday’s low, creating a small gap on the May chart. “It is verynegative that the market was not able to print a $2.90,” a riskmanager said. The May contract is now back within the $2.70-90trading range that confined the April contract during the majorityof its tenure as prompt month.

Looking ahead, sources are mixed as to whether yesterday’slosses are just part of a small pullback or the start of a largercorrection. A Northeast paper trader favors the latter and believesthe evidence lies in the unseasonably warm weather throughout themonth of March in his region of the country. “That has allowedstorage to make up some of the deficit to last year putting us alittle less behind the eight ball heading into the injectionseason,” he reasoned.

Tim Evans of New York-based Pegasus Economic Group takes aslightly different tack but arrives at the same conclusion. “Thenatural gas market also seems overbought when viewed through thelens of its CFTC Commitments of Traders data. On March 14 fundswere net long 27,325 lots — a close match with their exposurelast October. Prices peaked then at $3.25 and tumbled to as low as$2.21 six weeks later. While we can’t assume and exact replay, thisdoes give an indication of the downside risk involved. Given thatphysical demand will be slight during April and May, this marketcould be setting up for a bruiser decline,” he said.

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