After starting out the session at a new high of $6.76, the June natural gas futures contract, one day before expiry, slid to the $6.55 level in mid-day trading before closing at $6.684, down 2.1 cents on the day.

Trading on Tuesday was considered a breather to Monday’s action, which saw bump-ups of 35.2 cents/MMBtu and $1.79/bbl in natural gas and crude futures, respectively. On Tuesday, July crude finished out the session down 58 cents to close at $41.14.

“My bearish outlook was invalidated with [Monday’s] strong rally,” said Craig Coberly of GSC Energy in Atlanta. He said a move into the $7.00-7.10 area (basis July) would be possible. However, daily Stochastic oscillators on Tuesday morning were showing that the market is still overbought. “When these oscillators turn down and ‘crossover,’ we’ll get an early indication that the rally may be complete.” Coberly said that if the market closed Tuesday below $6.55, then the rally would of been complete.

Shell on Tuesday said that its Mars platform in the Gulf of Mexico is expected to remain out of service for at least two to three weeks for repairs of a leak discovered on Saturday (see related story). Some market-watchers believed that news of the daily losses of 170 MMcf of gas and 150,000 bbl of oil affected the markets Monday (see Daily GPI, May 25).

However, Tim Evans of IFR Energy Services said he believes the Mars news “is of more psychological value than anything else. The 170 MMcf/d is not all that likely to be missed at a time when storage is rising comfortably.”

Evans said Tuesday’s natural gas trading echoed the price action in the crude oil market yet again. “We remain largely unimpressed by the short-term fundamentals here as best embodied in the year-on-five-year average storage deficit, which peaked at 163 Bcf back on Feb. 20 and has trended down to 15 Bcf as of May 14,” he said. “We see potential for a further swing in the direction in Thursday’s report, when a 90-100 Bcf injection would compare with a 76 Bcf five-year average.”

He said a mixed weather outlook suggests that the storage trend over the past few weeks may last for another week or two, which will test the patience of bulls. “We also still believe in the supportive forecasts for summer heat and hurricanes, but think the market has now gone a fair distance toward discounting that view.”

Evans added that he now sees the $6.604 level as new support, with projected selling in the $6.86-6.89 and $6.95-7.00 areas. “While the jump Monday attempts to decide the recent tug of war in favor of the bulls, the lack of follow-through here creates a potential bearish divergence here, leaving the market at risk for correction,” Evans warned.

In observance of Memorial Day, Nymex will close at 1 p.m. (EDT) Friday and will be closed all day Monday.

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