A week after the June natural gas futures contract flirted with breaking below the $6.00 mark, the July contract in Thursday trading was able to poke its head above the psychological $7.00 level before coming back to settle at $6.819, up 3 cents for the day.

The day began with the Energy Information Administration (EIA) reporting that 86 Bcf was injected into underground storage for the week ended May 27, which was slightly below industry expectations but right in the middle of historical analogs.

While the report provided no real surprises, natural gas futures in morning trade were unable to take corrective action after the 41 cent increase on Wednesday (see Daily GPI, June 2). July natural gas recorded a morning low of $6.66 at 10:29 a.m. EST. However, the prompt month began exploring higher soon after the report came out, hitting a high of $7.02, almost a dollar above the June contracts low of $6.03 during its expiration last Thursday (May 26). The venture above $7.00 was a prompt month first since the May contract did it on April 27, 2005.

The surge in natural gas futures that began on Wednesday caught many by surprise. “I had thought that the July contract was in a $6.20 to $6.60 trading range, and when it blew through that I knew I was wrong,” admitted a California broker.

Rafferty Technical Research’s Steve Blair said the downtrend was bound to change. “There was really pretty strong support last week in that $6.20 to $6.30 area and June futures even recorded a $6.03 low, so I still stand by what I said last week about the market not wanting to see natural gas under $6.00. I think this move started out very technical in nature as we got up around the $6.40s on Wednesday and then when the petroleum complex took off, I think that natural gas was definitely influenced.”

Blair said that while July natural gas ran into some resistance Thursday around $6.875, it really turned into a pivot point. “When we got up through there, I think you probably saw a lot more buying come into the market,” he said. “Our next major level of resistance is up at $7.10. I think for now, we may go up and test that $7.02 to $7.10 level again, but I really don’t think we are going to go through it.”

Advest Inc.’s Jay Levine classified the petroleum inventory reports from the American Petroleum Institute and the Department of Energy as slightly bearish and the EIA natural gas report as slightly bullish.

“Technically the markets are on a rip, as well is psychology,” he said. “If anything, the recent downtrend and downright grizzliness is being tempered by recent action — and I probably should add — catching many bears in napping. I’d call it more complacency more than anything else, but it never takes much to alter psychology and that’s without anything materially changing.

“Whether or not this continues is besides the point because these markets have had a nasty habit of ignoring existing fundamentals and keying off something else,” Levine said. “That something else has been concerns and fears and it’s been just a matter of time, in my opinion, before it rears it’s ugly head again…regardless of the fundamentals.”

The storage report really didn’t end up turning too many heads Thursday. A Reuters survey of 19 industry players produced an expectation that a 90 Bcf build would be reported, while the ICAP-Nymex storage options auction, which runs from 3-4 p.m. EDT on Wednesday, produced a consensus forecast of an 89.9 Bcf injection.

The 86 Bcf build was comparable to last year’s 87 Bcf build and the five-year average injection for the week of 85 Bcf. Working gas in storage now stands at 1,778 Bcf, according to EIA estimates. Stocks are 226 Bcf higher than last year at this time and 304 Bcf above the five-year average of 1,474 Bcf.

In the East Region, stocks were 105 Bcf above the 5-year average following net injections of 59 Bcf. Stocks in the Producing Region were 158 Bcf above the 5-year average of 487 Bcf after a net injection of 16 Bcf. Stocks in the West Region were 41 Bcf above the 5-year average after a net addition of 11 Bcf. At 1,778 Bcf, total working gas is within the 5-year historical range.

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