With little fresh news available to prop it up, natural gas futures sagged to new 10-week lows Tuesday afternoon as traders contemplated whether they would rather be long or short gas for the entire month of April at a price near the $5.00 level. A rebound at the closing bell was too little and too late for the prompt month which closed beneath key support, down 17.6 cents for the session at $5.077. April will expire at 2:30 p.m. EST Thursday.

As has been the case for almost two weeks now, natural gas futures were caught between bulls’ desire to take the market higher on account of the low level of gas in storage and bears’ sense that $5.00 gas is unheard of in the low demand shoulder month of April. Cash prices played the role of tie-breaker Tuesday as mild weather had many buyers backing off their requirements. NGI‘s Henry Hub index slipped one cent to average $5.06 Tuesday, and many traders felt that the market’s softness spilled over into their futures market dealings.

Although it rebounded off a late low at $5.00 Tuesday, the April contract suffered an undeniable setback by settling below key support at $5.08. That, suggests Ed Kennedy of Commercial Brokerage Corp. in Miami could be a sign that the market’s next stop will be a price with a “4” in front of the decimal point. “We went from a period of no price control (as the market rose and fell from its peak at nearly $12) to a period of price control (as the market has chopped back and forth in the low- to mid- $5.00 recently). Now that the market has closed below support, we could see the fund and local selling that could take us back below the $5.00 level,” he reasoned.

He may have a point, especially considering the recent behavior of the funds. After being long since early December, the non-commercial (fund trader) segment of the market has peeled back its exposure so that they now are basically flat. “This gives them the ability to now test the short side of the market,” Kennedy postulated. Looking further ahead, he remains uncertain of the market’s direction. “Summer temperatures and hurricanes remain the wildcards out there.”

Also a wildcard is the storage situation, which will be updated by the Energy Information Administration this Thursday. Early projections call for a net change ranging anywhere from a 45 Bcf injection to a 47 Bcf withdrawal. Kyle Cooper of Salomon Smith Barney targets the middle of that range, and looks for between an 8 Bcf withdrawal and a 2 Bcf injection. In any event, it is clear that this week’s figure will be price bearish when compared with the year-ago net change of a 75 Bcf withdrawal. The five-year average is calculated as a 59 Bcf withdrawal.

In related news, Nymex Tuesday introduced two additional natural gas basis swap futures contracts for trading on NYMEX ClearPort system — one based on the differential between gas in Waha, Texas, and the Exchange’s benchmark Henry Hub natural gas futures contract and the other based on the differential between the Colorado Interstate Gas Company (CIG) Rocky Mountains price and the Henry Hub futures contracts. These latest offerings bring the tally of Nymex natural gas basis swap contracts to 25.

Exchange President J. Robert Collins, Jr., said, “These products have been heavily demanded by our NYMEX ClearPort users and we believe they have tremendous potential to further expand the burgeoning growth of the system, which has seen its heaviest activity in our natural gas products.”

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