Like a locomotive slowly gaining momentum, the natural gas futures market chugged higher Wednesday as traders lifted the market off early lows in anticipation of a bullish reaction to Thursday’s gas storage report. Although it missed matching Monday’s $5.25 high by a few ticks, the May contract impressed traders with its 8.7-cent advance and $5.195 close.

What a difference a week makes. Last Thursday the futures market dropped to $4.88 as traders learned that a whopping 37 Bcf was injected into storage during the seven days ending March 28. Now a week later, the market appears ready to rally as traders prepare for a more modest injection (or even a small withdrawal).

Last year at this time the market witnessed a 9 Bcf refill and the five-year average is calculated to be a 14 Bcf injection, according to Energy Information Administration storage data. An informal NGI poll of industry contacts yielded a range of -8 to +40 Bcf and an average injection expectation of 15 Bcf.

But regardless of what the EIA says about storage, the market is poised to rally, sources agreed. “Unless we get some long-lead weather forecasts calling for cooler than normal temperatures this summer or begin to develop a trend of storage injections well above last year, this market has upside potential,” said a Washington DC-based broker. “This market saw very good support at $5.00. If I were a speculator, I’d be looking to sell puts below $5.00 to collect the premium.”

In the wake of Enron, Aquila, Dynegy, CMS and others leaving the wholesale natural gas trading arena, it has been the speculative activities of the funds and the locals that have pushed the market around. “Before they all got out of trading, the funds would try and push the market up and the [commercial traders] would sell against the rally,” said Nymex local Eric Bolling. “Now that the trading community has far fewer bullets, the funds are better able to push prices around.”

Bolling was quick to point to the latest Commitment of Traders Report released Friday as proof that the funds could be poised for a move higher. According to the Commodity Futures Trading Commission, non-commercial accounts held a net short position of just 3,397 contracts as of April 1, well below their peak length of nearly 33,000 back in February. “They could very well look to bid this thing up and not much will stand in their way. The locals will just jump on for the ride,” he said.

In daily technicals, Tim Evans of IFR Pegasus in New York sees support at the confluence of Tuesday’s and Wednesday’s lows of $5.035 and $5.04 respectively. Aforementioned psychological support resides at $5.00. On the upside, a fairly important line has been drawn in the sand, Evans continues, with the $5.25 high from Monday now matching the declining pivot-line resistance. To take advantage of this crucial level should the market break higher, Evans looks to enter a 50% long exposure at $5.28, using a sell stop back at $5.08 to limit his risk.

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