After running up to reach a high of $8.280 last Wednesday, prompt-month natural gas futures have put together a string of down days with Tuesday being the fourth. May natural gas, which expires Wednesday, reached a low of $7.140 on Tuesday before closing at $7.254, down 30.4 cents on the day.

After settling at $8.192 on April 19, May natural gas has shed a total of 93.8 cents in the last four consecutive sessions. June crude, which has also weakened slightly in recent days, explored lower on Tuesday as well. The June crude futures contract closed at $72.88/bbl on Tuesday, down 45 cents.

June natural gas, which takes over as prompt-month contract in Wednesday evening’s Access trading session, also recorded a significant slide on Tuesday. The contract closed at $7.455, down 33.1 cents.

With May natural gas options going off the board Tuesday, some market experts said the drop in May futures could have been traders angling for certain options strike prices.

“We had quite the fall on the day in natural gas and I am not exactly sure why except for the fact that it was the last day for May options and Wednesday marks May futures expiration,” said a Washington, DC-based broker. “I think there was a certain amount of pushing for the options strike at $7.250, which of course impacted the market. It really looks to us like we might try to test down to $7 again. We are still kind of in the shoulder season of low demand and that is clearly having an impact, especially in view of the fact that we continue to build inventory. In the near-term, I think that’s a very important element.”

The broker said that from a technical point of view, this push lower is likely a final effort to test the lows again. “We think it is unlikely that futures will go much lower than the $6.65 level that we had talked about quite some time ago,” the broker said. “More importantly, I think people should watch the relationship between the spot month and winter natural gas. That to us is something that deserves to be watched very closely. That spread needs to start to narrow before we get comfortable that we are out of the woods.

“In March, it looked like that spread was starting to level off with winter trading at around a $3.80 premium. However, since then, we have actually seen that differential rise, meaning that the front month was falling relative to next winter,” he said. “The difference between spot May and January of 2007 right now is $4.63. This is the trade I’ve been watching to see if it begins to reverse a little, but that has not yet happened, so I think you still have to take the view that the market is going to test down a little further.”

Others think the recent dip is going to be short-lived. “Although the technical picture was damaged slightly Monday with the violation of support at the $7.65 level, overall trends still leave open the possibility of another eventual run at the $8.50 area, basis June futures,” said Jim Ritterbusch of Ritterbusch and Associates.

One problem that often arises when fundamentals and technical considerations are in conflict is that useful trends are slow to develop. “These generally favorable technicals will continue to conflict with bearish supply side fundamentals resulting in a choppy trading environment. In the background, a potential large capital inflow from large speculative entities will provide a bullish consideration,” he said.

May natural gas futures expire Wednesday and in the short run traders are looking for weakness followed by an eventual move higher. “I expect prices to work lower over the week, yet buyers should step up in the June contract at around $7.50,” a New York floor trader said. “I don’t think the petroleum products are done to the upside and crude will push $80 and natural gas will follow along with it. I look for June to trade above $8 and eventually test $8.30 to $8.40. Natural gas was trading in a range between $6.50 to $7.50 and now it’s $7.50 to $8.50,” he said.

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