The sideways chop surrounding the $4 price level in natural gas futures trading prevailed on Wednesday as the May contract ping-ponged between $3.933 and $4.044 before closing out the day’s regular session at $3.955, down two pennies from Tuesday’s finish.

With the recent directionless activity, some market watchers are waiting anxiously for Thursday morning’s natural gas storage report from the Department of Energy (DOE) for the week ending April 16. A larger-than-expected build in inventories could put pressure on the $3.810 low for the move that was recorded on April 1. Following last Thursday’s larger-than-expected 87 Bcf addition for the week ending April 9, the May contract dropped 21.4 cents.

“The temperature outlook remains relatively benign and we continue to look for above-average storage injections over the next few reports, with Thursday’s DOE report likely to show 80-90 Bcf in net injections, a clear step up from the 33 Bcf five-year average for the date,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “As we look ahead to May, the seasonal shift in the market will change the dynamic somewhat, in that warmer-than-normal temperatures will become more supportive as air conditioning demand becomes more important than any late heating requirements, even in the northern U.S.”

Evans expanded on what market activity he sees contributing to the battle around $4. “The natural gas market continues to see light-volume price chop around the $4 price level, with consumer hedge buying offset by what looks like an ongoing flow of speculative long liquidation,” he said.

Taking a closer look at the number to be revealed at 10:30 a.m. EDT on Thursday, a Reuters survey of 28 industry players produced an injection range of 64 Bcf to 90 Bcf with an average build expectation of 78 Bcf. The number will also be compared to last year’s date-adjusted 42 Bcf injection.

Some traders suggest that natural gas enjoys a highly competitive position relative to other fuels and as such should hold prices in the $3.800 area. Peter Beutel of Cameron Hanover pointed out that more than 80% of the May settlements since 2002 have been above $4 and “any opinion one holds on any market should always be tempered by price. It is one thing to be bearish when prices are at more than $10. It is another to be bearish when they are beneath $4.00.”

Beutel readily concedes that the supply and demand factors are bearish, “but prices have discounted a good many bearish factors in their decline from $13.69 in July 2008. And natural gas also has value in relation to other fuels. Based on where it was and where other fuels are, gas is a bargain. That seems to be at the heart of its ability to hold above $3.81 right now.”

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