After taking a wild ride in morning trading to a $6.48 high, the June natural gas futures contract settled down a bit Wednesday afternoon to close at $6.405, up 1.9 cents on the day. With a lackluster natural gas storage report expected Thursday morning, traders said the futures market could move in either direction given the recent gains.

“The further gains in the petroleum complex are keeping the market from focusing too much on Thursday’s DOE storage report, which may show a neutral-bearish rate of injection,” said Tim Evans of IFR Energy Services. “We are looking for a 60-70 Bcf build, but the consensus is reportedly closer to 75 Bcf. These underwhelming figures may not support a further uptrend in price, but they won’t contradict additional gains too emphatically either, perhaps allowing the market to maintain a focus on summer heat and hurricanes.”

Thursday’s injection will go up against a five-year average build of 69 Bcf and last year’s 64 Bcf build for the corresponding week. Kyle Cooper of Citigroup is looking for a build between 76 and 86 Bcf. “A build in this range would continue to indicate a bearish temperature adjusted supply/demand balance,” he said. “This should continue to place inventories on pace to easily surpass 3,000 Bcf with levels over 3,100 Bcf also quite likely.”

Cooper noted that the weather forecasts are still considered neutral for east of the Rockies as the above normal temperatures in the northern states late in May are not really considered bearish, but more neutral.

Thomas Driscoll of Lehman Brothers said he is still looking for a storage injection of 65 Bcf for the week ended May 7. “We estimate that cooler weather (20 CDDs vs. 23 CDD last year) reduced cooling demand by about 3 Bcf versus last year,” he said.

Speaking on the futures market, Evans said the chief downside risk to natural gas is the fact that crude oil is currently walking a high-wire. He noted that if crude falls off, it could pull natural gas prices lower with it.

“Failed resistance at $6.36 has functioned as support for June natural gas so far on Wednesday although we think it is still too tight to current levels to function fully in that capacity,” he said. “We see additional buying from $6.32 down to $6.28 as more pivotal in nature, with a break of that level tipping prices back toward the recent $6.12-6.155 lows.

“Failed resistance at $6.01, uptrend support at $6.00 and the prior shelf of lows in the $5.825-5.87 span would also tend to support prices in the event of a pullback,” Evans added. “The move to a new high is constructive here, but the market may want to see the DOE report before fully embracing the uptrend.”

Tom Saal of Miami-based Commercial Brokerage Corp., said fund traders (non-commercials) have over the past couple of months gradually decreased their short positions to accumulate a decent-sized net long holding. At the same time, the non-commercial open interest (longs and shorts combined) is larger than it has ever been.

Add to that the fact that the market’s overall open interest has been growing the last several days, and Saal believes there is a strong possibility that the next Commitments of Traders (COT) report will show another increase in non-commercial net long positions. As of May 4, the non-commercial traders were net long 18,156, a dramatic departure from the 34,748 net short positions held back on Feb. 10, when prompt futures closed at $5.404.

But despite the apparently heavy presence of the speculative side of the market, volatility has remained low and that creates some opportunities, continued Saal. “Historical volatility is at an all-time low. Now is the time to buy options.”

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