After slipping 2.5 cents Tuesday, the May natural gas futurescontract climbed back up to just below stubborn support at $2.19yesterday in tenuous trading ahead of the release of the AmericanGas Association (AGA) storage report. May finished the session up 3cents to $2.174.

Sources polled by NGI Wednesday pointed to increasing concernsthat lower production and deliverability levels will create asupply-demand imbalance in bull traders’ favor in the weeks andmonths to come. “There are some people who feel that production isoff 3-5% in the last 12 months and I think we are starting to seeit, not only in the price, but also in storage injection figures.There is just not as much gas available as there was a year ago,”he said.

And if the latest supply data handed down from the AGA Wednesdayafternoon was any indication, he may be right. In their weeklyreport, the AGA estimated only a net 2 Bcf was injected into theground last week. That figure pales, not only compared to marketexpectations in the 20-40 Bcf range, but also to last year’s 54 Bcfinjection figure. The often-quoted year-on-year surplus now sits at234 Bcf, down from the 286 level of a week ago.

By 6:40 p.m. EST last night the storage report already was beingfactored into prices as the May contract muscled an additional 2.9cents higher to $2.203.

However, a Gulf trader believes a decrease in potential supplyis not the only factor pointing to additional gains. He targetsstrong cash prices and heavy long positions held by fund traders asindications the market still has room to trend higher. “Funds don’ttypically ride a price move for 10 or 20 cents. No, they are in itfor the 40- or 60-cent move. And because they have only been on thelong side of the market since last bidweek, I’d say there is stillsome upside left in this thing.” Additionally he feels that abullish bias has already been embedded into nearby cash prices.”May basis has tightened considerably in the Gulf. HistoricallyColumbia Gulf trades about 3.5 cents off futures, but that hasshrunk to just 2 cents recently,” he said.

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