After failing to key off Tuesday’s kick-off of the 2010 Atlantic hurricane season, natural gas bulls grabbed hold of Wednesday to test out higher prices. The July contract put in a high of $4.440 before closing out the regular session at $4.424, up 17.6 cents from Tuesday’s finish.

Traders find the market sitting near the top of its recent range. Besides the May 18 spot high of $4.494, a front-month contract has not traded higher than it did on Wednesday since March 15. Whether the market is poised to fail again at the $4.500 test, or finally break out to the upside, remains to be seen.

Market watchers don’t see much fundamental support for higher prices. “The bullish bet in natural gas remains a bet on weather…as we continue to see evidence of rising U.S. production on relatively aggressive drilling programs from producers,” said Tim Evans, an analyst with Citi Futures Perspective in New York.

Although Monday’s 9.3-cent loss was a disappointment to the bulls, analysts see last week’s price strength as a signal that at least for the moment price lows are in. “On Monday and Tuesday natural gas prices touched a low of $3.986, which is hardly a technician’s idea of a perfect test of support at $3.81, but one that is near enough for more fundamentally oriented traders to state with confidence that we saw a test of the major lows last week,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm.

In his view, the fact that prices broke the psychologically important $4 level and didn’t fall further is important. “What one should take away from last week was that prices broke $4/MMBtu without needing to drop any further. In that respect the twin lows at $3.986 acted very much like important tests of $3.81 and may have accomplished everything that any full-fledged actual test of that figure could have achieved. The sideways to higher trend remains intact along with the critical support, at least for now,” he said.

July futures rallied a combined 18 cents last Wednesday and Thursday, and in Beutel’s opinion “there was a clear message that it will take more than ordinary selling, based on poor industrial demand and abundant amounts in storage, to push prices below the critical support at $3.810.”

Longer term, weather forecasts are likely to help prices at least hold support as well. MDA EarthSat in its 11- to 15-day forecast reports that a ridging pattern expected to bring warmth to the eastern half of the country remains in place. “The pattern [Wednesday] has held consistent with yesterday, though we’ve begun to show more amplification. This has resulted in some warmer changes over the Midwest, including a couple days of ‘much aboves’ [normal temperatures] within the period,” the forecaster said in its morning energy report.

The forecaster added that the western U.S. looks like it will be cooler, but “the more amplified pattern has the support of most model guidance including the ESRL [Earth System Research Laboratories] reforecast ensembles and the NAEFS [North American Ensemble Forecast System], as well as positive trends of the AO [Arctic Oscillation] and likely negative trends of the PNA [Pacific North American oscillation]. This growing support has raised confidence slightly.”

Previewing Thursday morning’s natural gas storage report for the week ending May 28, most expectations are for an injection between 91 Bcf and 110 Bcf.

“We’re looking for as much as 110 Bcf in net injections to storage as degree day accumulations were lower than in the prior week, when 104 Bcf was added, although we note some are looking for a lower 90-95 Bcf net injection,” said Evans

A Reuters survey of 23 industry players produced an estimated injection range of 85 Bcf to 110 Bcf with an average expectation of a 94 Bcf injection, while Bentek Energy’s flow model projects a 91 Bcf injection, which would bring inventory levels to 2,360 Bcf. Bentek’s estimate consists of a 47 Bcf injection in the East Region, a 26 Bcf injection in the Producing Region and an 18 Bcf injection in the West Region.

“Warmer-than-normal temperatures in the Midwest and Northeast caused large spikes in demand in those regions, pushing injections lower,” Bentek said in its weekly storage note. “Demand in the Southeast/Gulf also increased last week.”

The number revealed Thursday at 10:30 a.m. EDT will be compared to last year’s date-adjusted 121 Bcf build for the week as well as the five-year average injection of 99 Bcf.

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