Without much new information to trigger a significant change, April natural gas futures gapped lower at the opening bell to $6.740 in response to the continuing heavy storage inventory situation, but then managed a slow climb throughout the day Tuesday to end up 3.3 cents at $6.868. April crude seemed to move almost in lockstep, initially dipping to $59.60 but then ending the day up 15 cents at $60.57/bbl.

Futures broker Jay Levine compared the current energy complex to a beached whale pushed ashore by bearish fundamentals, while at the same time capable of taking off again because of an underlying nervousness about the longer-term tight supply/demand balance.

The gas market is “base building” said Levine. “Unlike a top, which usually happens very quickly, base building takes time. You are seeing a market that has been burdened by burgeoning supplies, a fundamental picture that doesn’t equate with higher prices.

“Pricewise I think it’s already there. That doesn’t mean we can’t [drop lower], but I think this mid $6-to-low $7 level is in the hailing distance of a bottom. I’ve heard of people speaking $5, and $4 handles…but of course talk is cheap and I think gas is as well. Fundamentally…natural gas is still expensive. Fundamentally, I don’t think crude is worth $60/bbl. But we still have the fear premiums…and it won’t take much to ignite that. It’s just a matter of time.

“When you look at the risk/rewards given where we came from last year, I just think we’ve been lucky, and at some point that luck will run out.”

Levine said the near-month gas contract posted a small victory Tuesday by holding above $6.70. The daily low was $6.730. “It had a firmer tone all day and put in a minor victory.”

However, futures analyst Kyle Cooper of IAF Advisers said he expects the market to continue “chopping around for a while” because of the offsetting fundamentals of high storage levels and the potential for strong summer demand from gas-fired power generation, not to mention the threat of hurricanes.

“Certainly with crude still at $60, I think we are just going to chop around. I think from this level we probably have a little more danger to the upside. I think $7.50 or $8 will be the upper end on the May contract and I don’t think price will go below $6.50 on the downside, at least for the next few weeks. Now, if we get into April and it’s warm and we put 50 Bcf into storage in the second week of April and 75 Bcf in the third week, then I think you could open the door for some lower pricing.”

Cooper said he’s expecting a storage withdrawal of about 30 Bcf in this week’s EIA gas storage report, compared to 89 Bcf during the same week last year. Energy consultant Stephen Smith is forecasting a 22 Bcf withdrawal, while Tim Evans of IFR Energy sees something in the 65-75 Bcf range.

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