July natural gas futures inched higher Tuesday as traders see the market needing to overcome difficult technical resistance before any trend higher can be resumed while others see the market at a turning point. At the close July had advanced a miserly 0.4 cent to $4.831 and August futures were up 0.1 cent to $4.858. July crude oil rose 8 cents to $99.09/bbl.

“The market is having a tough time getting through unchanged. We’ve pulled back a few times to the $4.76, $4.77, $4.78 area and rallied back, but I think the funds are doing some selling in the low $4.80 range,” said a New York floor trader.

He added that there was stout [technical] resistance at the $4.85 area, and “I’m thinking the next resistance point is at the $5 level. At that point I think there will be fresh buying and short-covering coming into the market.” When queried whether funds and managed accounts were likely to re-enter the market on the short side, he said, “I think they are scratching their heads. It’s been really hot and is forecast to stay hot, so they are not sure.”

Others aren’t so sure that the market can continue much higher. Wave counts suggest that the market may advance, but sentiment indicators are suggesting caution. “Since natural gas held our $3.240-3.200 key support, the minimum implied target has been the $5.000 level,” said Walter Zimmermann, vice president at United-ICAP. “As the rally from $3.212 has unfolded the $5.400-5.500 zone is looking more like the higher-probability target. And as that zone nears, the sentiment has reached key resistance levels.”

Market sentiment can sometimes pinpoint a change in market direction. “The sentiment readings since 2009 suggest this natgas rally is now skating on very thin ice. Once all the nervous shorts have been squeezed out…we expect the ice will break and natgas will then break lower,” he said in a weekly note to clients.

Talk about heat! “A heat wave responsible for setting more than 1,000 record highs since the start of the month across the eastern two-thirds of the country is set to expand again. Temperatures will climb into the 90s across the Northeast through Thursday, and the humidity will become oppressive,” said AccuWeather.com meteorologist Andy Mussoline. “High temperatures in Washington, DC, will approach 100 both Wednesday and Thursday. New York City will peak at 95 on Thursday, marking the hottest weather of the year so far for the city; they will approach their record high of 97 on the date set in 1933.”

The heat is expected far beyond the Northeast. “Farther south, the heat wave did not spare New Orleans. There were four straight days of record heat from June 1-4. Temperatures of 100 degrees scorched the city on June 4, making it the earliest 100-degree day on record,” he said.

Top analysts see the heat as capable of disrupting natural gas storage injections.

“This market remains subject to the vagaries of the one- to two-week temperature forecasts. A firm start to this new week is indicating continued hot temps that are still showing up within the six- to 10-day [forecast] views across the eastern half of the nation,” said Jim Ritterbusch of Ritterbusch and Associates. “This implied strength in EG [electrical generation] demand at such an early stage of the summer forces the market to discount some sub-normal storage injections for a few weeks with end-of-June supply likely to fall short of the 2.5 Tcf level.

“As a matter of fact, it appears that this entire month of June may see storage increases downsized by some 20-25% from the 400-425 Bcf [monthly] builds that were widely projected just a few weeks ago. As a result, a renewed supply surplus against average levels will be delayed and closing a sizable shortfall of around 240 Bcf against last year is apt to be postponed until late summer-early fall, if then.”

As if the intense eastern heat weren’t enough, tropical activity, although diminishing for the moment, still remains in play. The National Hurricane Center (NHC) reported that at 2 p.m. EDT Tuesday the tropical system in the northwestern Caribbean was becoming less well developed. The large low-pressure area located about 100 miles south-southwest of Grand Cayman was producing disorganized shower and thunderstorm activity. “Upper-level winds are becoming less favorable for development of this system…[and] there is a low chance, 10%, [down from 20% at 8 a.m.] of this system becoming a tropical cyclone in the next 48 hours,” NHC said.

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