Tuesdays have been a natural gas bull’s savior as of late. Making it three in a row, futures rebounded yesterday as traders once again were in a buying mood ahead of Wednesday’s weekly storage report. Fighting against a gap lower open and a quick move down to $4.05, buyers stepped up their efforts mid-morning and watched as prices bubbled higher throughout much of the rest of the session. Although small, the one-cent advance leading to yesterday’s $4.123 closing price was claimed as a victory by bulls who have found little to like about this market thus far in 2001.

Several traders were surprised by the market’s ability to extend lower early Tuesday without moving down to touch support at $4.00. A possible explanation, one trader suggested, is that buyers are more than happy to lock in $4.00 gas now — less than five months after prices were $10.00. “We saw some pretty good scale in buying [Tuesday], and my guess is that it will only get heavier if we dip below $4.00,” he continued.

However, the bearish fundamental picture threatens to take futures lower, said Tim Evans of New York-based IFR Pegasus. “The contrast between the higher than average [American Gas Association] storage refills this spring and the below-average injections last year remains the chief bearish fundamental driver here…a trend we see extending in Wednesday’s data for last week. We’re looking for 90-110 Bcf in net injections, easily clearing both the 55 Bcf refill of a year ago as well as the 66 Bcf average for the past seven seasons. The 86 Bcf year-on-year deficit seems destined to fall even further.”

Thomas Driscoll of Salomon Smith Barney agrees with this prediction, offering up 105 Bcf as his refill estimate. Based on heating degree day forecast data for the current week, Driscoll anticipates an 85 Bcf refill to be reported next Wednesday, versus a 56 Bcf withdrawal a year ago. “The year-over-year shortfall in storage should virtually disappear over the next two weeks. The storage deficit has fallen from 404 Bcf six weeks ago to 86 Bcf currently. Two weeks from now we expect the deficit to narrow down to nearly zero.”

In daily technicals, Evans targets support first at the aforementioned $4.00 level, followed by potential buying interest in the $3.61-76 area. On the upside, if June were able to break about nearby resistance at $4.20-21, and $4.26 it could signal a retest of downtrend resistance at $4.54, he said. Currently, he is riding a short position initiated at $4.42. A buys stop pulled down to $4.28 limits his risk.

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