Coming as the antithesis to Monday’s humdrum directionless trading action, Tuesday saw natural gas futures traders push the May contract to new highs for the move at $7.930 before closing out the regular session at $7.869, up 32.3 cents from Monday.

While the various natural gas trading divisions seemed to be cohesive in Tuesday’s move higher in prices, some within the market warned that they would be “awfully surprised” if there wasn’t some significant selling on Wednesday.

“We are really only testing the upper reaches of the current trading range. The key to that statement is that we are still within the recent trading range. Resistance is up at $8.060 and then $8.250. I don’t think it is ready to get up there yet,” said Ed Kennedy with Commercial Brokerage Corp. in Miami. “I think we are going to run into selling Wednesday, just like Tuesday’s up move triggered some short-covering by funds.

“We saw the big short interest by the funds in the Commitments of Traders [COT] report over the weekend. I think they came back into the market Tuesday. Moves by the trend-following funds are numbers-generated, and I think we went through their numbers Tuesday and they covered. They may even put them back out again if we move a little higher, but that remains to be seen,” he added.

The Commodity Futures Trading Commission’s Natural Gas COT report Friday revealed that noncommercial traders held nearly 21,000 net short positions as of April 3.

Looking to the near term, Kennedy said he’s not sure just how comfortable the natural gas futures market would be with an eight in front of its price. “I have to admit, I expect some pretty good selling once we try to put an eight in front of this thing,” he said. “I think we are adequately priced for the time being.”

Addressing the trading landscape out a little further into late spring, the broker said bulls will likely find themselves in the driver’s seat. “We can — on balance — start making more of a bullish case over a bearish case when looking at the hurricane forecast for the Atlantic in 2007,” Kennedy said. “There seems to be unanimity across the forecasts, which is a scary thing by itself. The European model, AccuWeather, Colorado State University and others, are all calling for an active season, adding that Florida and Gulf of Mexico are open for hurricane business — as they were in 2005. While they are calling for less storms than 2005, they are warning of more powerful storms, so let’s see what happens.”

Jay Levine, a broker with enerjay LLC in Portland, ME, said the natural gas futures market is “acting up” due to “lingering cold” and “market psychology” aiding that cause.

“Nevertheless, and in spite of natural gas acting in what many sense is capricious fashion — and butting up against what I’ve pegged as potentially solid resistance in that $7.85-7.95 area (and very close to technically breaking out) — it does highlight that energy is far from rolling over and back to historically cheap prices, even if they do take a dip or plunge (from near $8, mind you) in the near term,” Levine said. “Based on recent action, volatility is also likely to continue and to be the order of the day as well; as well as sharp intraday reversals and head-fakes.”

Monday’s price plunge by crude oil and a relatively muted response from natural gas futures had analysts scratching their heads. While May natural gas slipped 6.1 cents on that day to $7.546, May crude oil futures spiraled lower by $2.77 to $61.51/bbl.

Jim Ritterbusch of Ritterbusch and Associates noted that typically weather is not much of a factor at this time of year, but the near-record-low temperatures across much of the Midcontinent over the holiday weekend have “provided a significant underpinning to the spot market while at the same time forcing analysts back to the drawing board in reducing storage injection expectations for the next couple of reports.”

As of Tuesday morning, Ritterbusch was unimpressed with the market’s short-term potential. “We are maintaining a neutral pricing stance for now in anticipation of further price consolidation within the $7-8 zone. However, in view of a longer term positive trading bias we will await price pullbacks to the $7.00-7.25 zone to be a buyer,” he said.

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