After starting its run as front-month contract with two days of negligible gains, May natural gas futures were pushed lower Wednesday, potentially in preparation for another bearish out-of-season natural gas storage build. The contract ended up dropping 8.1 cents from Tuesday’s close to finish Wednesday’s regular session at $3.695.

Even as futures have consolidated a bit over the past few weeks in the $3.650 to $3.750 price range, some traders — citing the lack of bullish indicators — believe that the bears are still in charge.

“Trading is a little bit on the quiet side, but it is not really all that surprising. As far as I’m concerned we are still in a bear market,” said Steve Blair, a broker with Rafferty Technical Research in New York. “The blip higher from two weeks ago was just an aberration and I think prices are back toward an area they should be based both on technicals and fundamentals” (see Daily GPI, March 20). He said his firm has major support around $3.500 to $3.560.

While a number of market watchers don’t see much room left for the downside (see Daily GPI, April 1), Blair told NGI he thinks the bears still have some room to move. “The belief that prices can’t fall much lower is contingent on shut-ins. Otherwise, there really is no reason this market can’t continue to go lower. There is a lot of gas still in storage, so I can’t call a bottom here. With gas at $3.695, obviously we can only drop $3.694, while the upside — if something happens — we can get up to $15. As a result there is more upside potential than downside potential, but I don’t think this bear trend is over yet. Some of the people I talk to think this market can get down to $2.500. I don’t know if they’re right, but we’ll see.”

Awaiting the Energy Information Administration’s inventory data for the week ended March 27, some industry insiders think the storage report — to be released at 10:30 a.m. EDT Thursday morning — is going to flip back to withdrawals, while others are still looking for another small injection.

“If we get another build, I think it will weigh pretty heavily on the market,” said Blair. “With inventories currently 372 Bcf higher than last year at the same time, I really think Thursday’s report is going to expand the overhang to over 400 Bcf. No matter how you look at it, we’re going to have a lot of gas in storage heading into injection season.”

Thursday’s data will be compared to the 30 Bcf draw reported for the similar week last year and the five-year average pull of 23 Bcf. A Reuters survey of 21 industry players produced a range of expectations from a 12 Bcf draw to a 10 Bcf addition with an average expectation that 2 Bcf will be injected for the week.

Even as the market awaits what could be another bearish build, Blair warned that the price action could be muted. “The age-old question will need to be answered once again,” he said. “Was the down day Wednesday in anticipation of another build? Is a bearish report already built in?”

Other top traders on balance also see a bearish tone to the market. “A bullish case can be supported by the fact that a sizable storage surplus, a slow production response to low prices and an ongoing decline in industrial demand [are] well known and hence discounted into the market,” said Jim Ritterbusch of Ritterbusch and Associates.

He acknowledged, however, that despite the steep discount, the bears still most likely had the upper hand. They can “point to the likelihood of a further expansion in the supply surplus going forward through the spring period and possibly well into the summer unless hot temperatures or an early start to the hurricane season are able to shift the balances. Our trading theme remains one in which a bearish stance is still warranted,” he said.

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