May natural gas futures on Wednesday made another run on resistance levels before afternoon selling drove the contract back down towards $7, a number that has acted as a magnet over the past seven days of trading.

Making up for its disproportionately small increase on Tuesday when crude futures jumped $1.92, May natural gas futures on Wednesday rose to a high of $7.19, which was significant because the market had topped out at the $7.09 level in two previous attempts. However, resistance in the high teens proved to be too much as May receded lower for the remainder of the session, settling 1.2 cents higher on the day at $7.057.

The significant pullback from the day’s highs had some experts donning their best bear outfits. “The natural gas futures joined the petroleum complex with an initial [round] of buying off the supportive DOE petroleum statistics for last week, but the pullback from the highs suggests that it encountered a fair volume of selling too,” said Tim Evans, an analyst with IFR Energy Services. “The net result may have only been to confirm the market’s larger bearish mood.”

May crude expired on Wednesday up 15 cents at $52.44/bbl, a far cry from the record it set of $58.28/bbl during trading on April 4.

Evans said the failure of the natural gas prompt month to stay above the previous failed support level of $7.14 called the market’s “commitment to the upside” into question. “A break back under the $7 mark would shift attention back to the $6.875 low of Monday, with a drop through that level putting the $6.76-6.77 lows of March 7-11 in jeopardy,” he said. “Failed resistance at $6.50-6.58 and the weekly uptrend line off the spot continuation chart at $6.39 could all become targets for a further decline from current levels. The inability of the market to hold its earlier gains is more consistent with an upward correction than with a more dynamic advance.”

With the Energy Information Administration’s (EIA) natural gas storage report for the week ended April 15 being released Thursday morning, Evans said the expectations of a 40-50 Bcf refill could give prices a firmer push to the downside. Evans said that anything over the five-year average injection will add something to the 269 Bcf year-on-five-year average surplus, “putting added weight on prices.” According to the EIA, the five-year average injection stands at 23 Bcf, while last year’s injection was 26 Bcf.

“With mild temperatures this week, we can anticipate a further bearish report before there is much chance for even a neutral figure,” Evans said. “While the natural gas market may have longer-term bullish prospects depending on the degree of summer heat and hurricane activity, the short-term fundamentals are bearish and the support of rising petroleum prices unreliable.”

The final ICAP-Nymex storage auction for the week, which runs from 3-4 p.m. ET on Wednesday, projects that the report will reveal a 49.9 Bcf injection.

In Tuesday’s trading, crude oil prices advanced sharply, but natural gas was unresponsive. “Prices throughout the complex were up sharply and natural gas could not get out of its own way,” said a New York floor trader.

He said that a number of traders were expecting a build of 50 to 60 Bcf in Thursday’s EIA storage report and if that happens he thought natural gas would “pull back a little bit more. I think the market can trade down to the $6.78 to $6.80 area given a large injection number.”

Tom Saal of Commercial Brokerage Corp. in Miami said that “fair market value” for the May futures is at $7.23. The $7.23 figure is derived from the market profile display of prices in the form of a bell-shaped curve with a maximum of $7.85 and minimum of $6.76. The $7.23 forms the mode or peak of the bell-shaped curve. From a trading standpoint, the $7.23 forms a major resistance point and “there could be a short covering rally and hedgers should sell into them,” said Saal.

Natural gas traders have been keeping a close eye on petroleum market developments recently, and most believe that lower crude and products prices will translate into lower natural gas futures and cash prices. OPEC actions will be key. OPEC agreed on March 16 to increase output quotas by 500,000 bbl to 27.5 million b/d a day and pledged to add another half a million barrels daily in the second quarter as needed. Quotas are fine but what is really needed is an increase in production. Some energy analysts are not paying close attention to OPEC quotas because most members are already pumping more than their official quotas allow and, aside from Saudi Arabia, few can pump any more than they are now.

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