While natural gas futures were much quieter than they had been when the April contract expired Tuesday, the fact that the May contract on Wednesday was able to keep, and even build on, its gains “spoke volumes” when compared to the rest of the energy complex’s performance.

While crude was trading over a dollar lower for most of the session, May natural gas held firm, refusing the temptation to sell off. Trading within a range from $7.33 to $7.48, the newly minted prompt month ended up settling at $7.46, up 5.8 cents on the session.

Despite trading as low as $52.50/bbl on the day, May crude ended up rallying back to settle only 24 cents lower at $53.99, while April heating oil settled a whopping 5.03 cents higher at $1.6066/gallon.

“What was going on in the background made what happened in natural quite impressive in my view,” a Washington, DC-based broker said. “We ended up almost 6 cents higher on a day when up until the end of the session crude was off over a dollar. With crude showing weakness for most of the day and a larger than expected [crude] inventory build, natural gas traders had perfect opportunity to take profit following Tuesday’s run higher.

“By natural gas remaining firm, it showed me just how strong the natural gas market is currently. The only reason people wouldn’t take profit here is if they believe $7.50 is going to be a low price in the coming weeks.”

The broker noted that natural gas has clearly finished its corrective mode, moved out of it explosively Tuesday, and then held onto the gains Wednesday in a healthy way. “It was a positive day, but it wasn’t another 30 cent day on top of Tuesday,” he pointed out. “If we had seen another sizeable gain, I would have said this might be getting too good not to sell.”

Noting that natural gas futures aren’t “going to infinity,” the broker said April is traditionally a positive month in the energy complex and he sees no reason to think otherwise. “We are tracing a very nice trendline that you can see with the naked eye on the May contract. It still looks like a healthy bull market to me.”

He noted that this move higher appears as if it might still have some more room to roam. “We’ve gotten through the $7.375 high basis the May contract, so I would say we have a decent shot of getting into the $7.75 range before possibly approaching the $8 mark.” He added that one technical charting model puts the possible top out level “well above $8.50.”

Analyzing the charts using the Elliot Five-Wave pattern, the broker said, “The question that needs to be answered is did we just finish a three wave up, have our correction four wave down, and are now in a fifth wave, or is this all just part of a very powerful lengthier three wave?”

Looking to Thursday morning’s release of the Energy Information Administration (EIA) natural gas storage report for the week ended March, 25, the broker said he is looking for a 50 to 62 Bcf withdrawal, which would at least double last year’s 25 Bcf pull for the week as well as the 24 Bcf five-year-average withdrawal. “If we get a sizeable withdrawal as expected, I don’t think the market will jump much,” he explained. “I believe the report will just act as another log on the fire of the bull case.”

Citigroup’s Kyle Cooper is calling for a 46 to 56 Bcf pull, while the ICAP-Nymex storage auction from 3 to 4 p.m. (EST) Wednesday — which allows people to hedge their exposure to the storage report — revealed an implied market forecast of a 51.7 Bcf withdrawal.

“I really don’t think the market is paying a whole lot of attention any more to the storage report,” the DC-based broker said. “I think the market is looking ahead to the structural issue and the fact that the economy still remains somewhat healthy. Everybody keeps asking what will make energy come off in a significant way. I hold out two things. It is either going to be something out of an unrelated financial field such as a large government debt default or currency adjustment that sends a shockwave to the financial system, or else it would take a larger macro event like a recession scenario playing out.”

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