Fueled by the first real blast of warm air of the cooling season, natural gas futures prices rallied and retreated Monday as traders alleviated oversold conditions and then turned and took profits. Local traders were active in the price movement, adding liquidity and volatility to the gas pit at Nymex.

After carving out a wide, 31-cent trading range, the July contract closed at $5.863, up 5.8 cents for the session. At 90,923 contracts, volume was moderate- to heavy for the session.

Traders were quick to point to forecasts for warming weather in the northeastern quadrant of the country as a reason for the price rally. According to the latest six- to 10-day forecast released Monday by the National Weather Service, above-normal temperatures are expected in a large triangular area of the country from South Carolina to North Dakota to Maine next week. In addition to being above-normal, those temperatures will mark a dramatic departure from the cool, wet and mild weather experienced in those areas for much of the spring.

Also working in favor of the bulls Monday was oversold conditions heading into the trading session. In a daily trade recommendation Monday morning, Tom Saal of Commercial Brokerage Corp. in Miami suggested his clients look to sell the expected short-covering rally. As it turns out, that was sage advice. By 11:30 a.m. EDT the July contract had peaked for the day at $6.12. Profit-taking ensued, pressing the prompt month lower for the final three hours of trading.

Technically speaking the market is still in an uptrend, both in the intermediate and long-term. Now that the August contract has traded back above the $6.07 price objective, Craig Coberly looks for a move to the $6.17-32 area. Once completing that rally, the market would be susceptible to another brief price retracement similar to the $1 decline logged June 6 through the 13. But as long as the market can resist trading below $5.11, Coberly remains bullish in the long-term and expects a run to the $6.62 high from earlier this month.

And while weather and technicals are in bullish agreement, they are conflicted by storage data which is likely to be bearish again this week when the Energy Information Administration releases updated numbers Thursday. Kyle Cooper of Citigroup calls for a 107-117 Bcf injection while Thomas Driscoll of Lehman Brothers looks for a 120 Bcf refill. The market has added 114 Bcf in each of the last three weeks, the largest three-week addition in the nearly 10-year history of storage data. Last year this week the market added 81 Bcf and the five-year average is for an 85 Bcf injection.

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