Tuesday’s uptick in near-month natural gas futures was exposed as mere short-covering on Wednesday as the May contract returned to the recent trend of plumbing the downside. The front-month contract reached a low of $3.860 before closing out the regular session at $3.869, down 10.4 cents from Tuesday’s finish.

“To those bulls in the market who were beginning to get their hopes up based off Tuesday’s trading, I’m sorry to tell you it was just a small round of short-covering,” said a Washington, DC-based broker. “Now we are heading into a shoulder season, so demand will likely be down for a bit. To add insult to injury, Obama’s announcement of the country’s plans to drill offshore won’t help the already abundant supply situation [see related story]. It really is ironic. For years, my producers have been pleading for the government to open up drilling in restricted offshore areas. Sure enough, gas prices drop below $4/MMBtu and the government throws open the door.”

From the charts, the broker likened the futures market to a highwire act operating without much of a net. “Our key support area at $3.820 seems to be holding up so far. It is an important price level because it represents a 61.8% retracement of the September-to-January move higher from $2.409 to $6.108,” she said. “We hit it almost to the tick, but then bounced higher. The problem is, there really is no follow-through to the upside. A lot of our technical indicators are showing an oversold market and basically pleading ‘please let me rally,’ but we can’t seem to do it. On the downside, if we break below $3.820, prices could freefall quite significantly because the only thing that really shows up on the charts is that $2.409 low.”

Taking a look at Thursday’s natural gas storage report for the week ending March 26, the broker said she is expecting the second injection of the season with a 14 Bcf build. “Whatever number we end up seeing at 10:30 a.m. EDT, we’ll likely see a pretty dead market shortly afterward as traders get a head start on the three-day weekend.”

By analyzing the withdrawal and injection patterns of the last three weeks, one New York broker told NGI last week that he had this report pegged (see Daily GPI, March 26). “From where I’m sitting, [this] Thursday’s storage report number is obvious,” he sarcastically said. “The last three weeks we’ve had draws of 111 Bcf and 11 Bcf, followed by an 11 Bcf build, so [this] week it only makes sense that we’ll see a 111 Bcf build.”

In all seriousness, Bentek Energy is projecting an injection of 26 Bcf, which would bring inventory levels to 1,652 Bcf. The research firm has the East Region withdrawing 2 Bcf while the Producing and West regions add 22 Bcf and 6 Bcf, respectively.

“Inventory levels are currently 11.8% above the five-year average, 11.5% below the five-year high, and in line with last year,” Bentek said in its weekly storage note. “Two weeks ago inventory levels fell to 1,615 Bcf, 39 Bcf below last year’s record high end-of-season level of 1,654 Bcf. After an early beginning to the injection season, inventory levels have climbed to only 2 Bcf below last year’s record level set this week last year.”

The number revealed by the Energy Information Administration on Thursday will be compared to last year’s “no change” for the week and the five-year average withdrawal of 28 Bcf.

In his approach to the natural gas futures market, Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm, notes that “nothing lasts forever. There will come a day when all we have left will be long-term buyers, companies who want to produce it or use it or both.” He pointed out that the community of investors and traders is already heavily short, and “it will almost certainly be a shoulder month, with moderate temperatures forecast out to the predictive horizon. Storage will seem plentiful. But prices will have reached their low.”

Thursday’s trade marks the end of business for the week as electronic Globex and Nymex floor trading of energy products will be closed Friday in observance of the Good Friday holiday.

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