Taking its cue from the crude oil pit on the New York Mercantile Exchange, the May natural gas futures contract on Wednesday looked to further test support, dropping another 4.4 cents to close at $5.744. It was the second straight day of losses for gas and oil futures.

May crude closed the session at $36.72/bbl, down 49 cents on the day, due in part to the Energy Information Administration’s crude inventory report released Wednesday, which revealed that U.S. crude stocks rose 3.2 million barrels to 295.4 million barrels during the week ended April 9.

“Between the further weakness today in the crude oil market and the questionable short-term fundamentals for natural gas, it is not surprising that we have seen a further test of the downside today in natural gas futures,” said Tim Evans, a futures analyst at IFR Energy Services.

Noting that the industry consensus for Thursday’s EIA gas storage report is shaping up as a 10 Bcf injection, Evans said that anything above the 9 Bcf five-year average injection looks bearish. During the same week last year, the industry withdrew 46 Bcf of gas.

“The short-term weather outlook features above normal temperatures across the eastern United States next week and that will exaggerate the normal seasonal decline in heating demand,” Evans said. “We think this will allow for a further test of the downside over the near term, although the summer prospects for heat and hurricanes remains supportive and will eventually limit losses.”

The prompt month’s low-end on Wednesday of $5.65 broke through support in the $5.71 area.

“The flush through the $5.69-5.71 lows of the past two weeks serves to at least clean out some sell stops below that level,” Evans said. “It will take a renewed decline past the initial $5.65 low to extend the decline now, putting pressure first on the failed resistance at $5.48-5.51 and then the $5.34 low from March 24 if the higher level fails to hold.”

Looking to the upside, the analyst said it likely will take a rally past minor resistance in the $5.85-5.87 area to convert Wednesday’s weakness into a “bear trap,” with May futures running back to revisit Monday’s $6.03 peak. “While this kind of dramatic scenario is not beyond the natural gas market’s ability to execute, we note that today’s break of the $5.69-5.71 mark is better evidence of a significant top and prices are more likely to continue lower.”

Craig Coberly of GSC Energy said he sees the prompt month’s recent behavior as a correction. “Gas is in a correction, but I’m uncertain whether it is correcting the rally from the February low, or just the rally from the March low,” he said. “I suspect the latter and that’s what I’ll use as a starting point. The support areas above are objectives for this correction.

“If, as suspected, gas is correcting only the rally from the March low, it’s likely that this corrective pattern will unfold in a three-wave ‘down’, ‘up’, ‘down’ pattern over the next four to five days and $5.49 should be about the downside maximum,” Coberly concluded.

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