Putting some more distance between the declines experienced last week, July natural gas futures continued its run Wednesday, trading up 18.5 cents to settle at $6.489, a far cry from last Wednesday’s $5.96 low.

Action on Wednesday resulted in the fourth consecutive up-day, which comes in stark contrast to the contract’s six-day decline that ended June 10 (see Daily GPI, June 14). Another evident change over the past few days was the divergent paths taken by oil and natural gas futures.

Even with oil recovering to record a 13-cent gain Wednesday, the contract was trading at a loss for most of the day while natural gas was doing the opposite. The Department of Energy’s oil stocks report revealed that inventories rose 0.8 million bbls to 302.9 million bbls, a new post-August 2002 high.

“The natural gas market looks like it has largely divorced itself from crude oil’s woes, thanks largely to the shutdown of the Palo Verde nuclear plants, which took 3,900 MW of capacity offline and made room for more natural gas consumption,” said Tim Evans of IFR Energy Services. “The support may not be long-lived however, as the plants could restart within another few days.

“July natural gas has pulled minor support up behind it in the $6.27-6.31 range and we see more buying back at the $6.20 low from Tuesday,” he said in an energy report Wednesday. “It would take a reversal through that zone to put the $5.96 floor from June 9 back at risk.”

Evans noted that he sees more buying scaling in at $5.91, $5.71 and $5.50 if the market were to reject its rally and resume the downtrend from the May highs. “July has cleared potential resistance at $6.40 and is now poised to attack the $6.50 lows from June 1-2 as failed support. Should prices clear that barrier as well, the highs at $6.73 and $6.805 become the high-profile objective for the advance.”

Craig Coberly of GSC Energy had one of his checkpoints crossed Wednesday. “Closing above $6.44 would be ‘too much’ for a wave four corrective rally and closing at or above this level would give us a reason to search for a bullish alternate,” he said Tuesday and reaffirmed on Wednesday.

However, some weren’t so ready to proclaim that the downside was finished. George Leide of Rafferty Technical Research in New York, said on Tuesday that Wednesday would have to settle above $6.50 to prove to him that the market has put the downside momentum behind it.

Looking towards the EIA’s natural gas storage report Thursday, Evans said he expects an injection of anywhere from 80 to 95 Bcf, not much different from the 83 Bcf five-year average. However, Evans said that the neutral-bearish outcome is already largely discounted, so it may not necessarily cool off the rally.

Kyle Cooper of Citigroup is calling for a build between 84 and 94 Bcf. This will compare against a build last year of 114 Bcf and a five-year average build of 83 Bcf. Cooper noted that there appears to be little tightness in the supply/demand balance and this should allow injections to continue at a very seasonal pace and surpass 3,100 Bcf by the end of October.

“Considering last year’s violent price rise in December, 3,100 Bcf in ground would still leave the market probably very vulnerable to early winter price spikes,” he said. “Price spikes this summer are still considered very probable on the first real heat and the first named tropical storm that is near the Gulf of Mexico.”

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