After trading lower in the overnight Access trading session, May natural gas futures broke down to a low of $7.02 in trading on Tuesday afternoon. However, the May contract, which expires on Wednesday, rebounded in the afternoon to settle at $7.12, down 3.3 cents on the session but just 1.5 cents less than the high for the day.
With May relinquishing the role of prompt month at the close of business Wednesday, numerous traders already have turned their attention to the June natural gas contract, which also settled near its high on Tuesday. June traded within a range from $7.08 to $7.19 for the session before closing at $7.181, down 3.5 cents for the day.
In addition to focusing on the weather and storage pictures, natural gas futures market sentiment continues to be led by developments in the petroleum complex, according to Tim Evans of IFR Energy Services, who added that there is more downside risk than upside potential over the weeks and months ahead.
“The ongoing rough seas within a fairly confined price range are consistent with a market that is in a corrective phase,” Evans said. “We see this as consistent both with the technical pattern, where the early April decline was longer than the late March rise, suggesting that the major trend has reversed to the downside, and with the fundamentals, where a larger  Bcf year-on-five year average surplus is leaning on values.”
The analyst said he believes Thursday’s Energy Information Administration (EIA) storage report will likely add to that cushion, with 80-90 Bcf in refills that will easily exceed the five-year average injection, which the EIA pegs at 51 Bcf. Last year saw an injection into underground stocks of 71 Bcf.
“June natural gas has continued lower after Monday’s weak close, but looks to have found some buying interest at $7.08, a dime ahead of the $6.98 floor from last week,” Evans said. “We see this as a key intermediate-term pivot, with a break of that level putting the $6.84 low of March 11 at clear risk, with the failed resistance at $6.60 as a more likely target, given the degree of consolidation already performed above the $6.98 mark.”
The analyst noted that the bulls may “still have a chance” at turning around this recent consolidation into a base of support for a move higher. “Overall, we think the market may be able to postpone its move lower, but not avoid it entirely,” he said.
For the week, the National Weather Service (NWS) shows that cooler temperatures may help the bulls’ case. The NWS predicts above normal accumulations of heating degree days (HDD) for the large gas-consuming markets of the Mid-Atlantic and Upper Midwest. For the week ending April 30, the NWS expects the Mid-Atlantic states of New York, New Jersey, and Pennsylvania to see 101 HDD, 13 above normal, and the highly industrialized states of Wisconsin, Illinois, Indiana, Michigan and Ohio should expect 115 HDD, a stout 24 above normal.
For the month as a whole, however, the Mid-Atlantic and Midwest states above will be behind the pace for a typically mild April. At the weekly HDD rates above, the Mid-Atlantic will be far below its normal April of 496 HDD. The 115 HDD weekly sum for the Midwest is not enough help accumulate the 510 HDD normally aggregated in April, according to NWS figures. The monthly norms are based on a 1971-2000 average.
The below average monthly accumulations of HDD are important, for the industry already stands at a hefty working gas storage level of 1,343 Bcf or 270 Bcf greater than this time last year and 297 Bcf more than the five-year average. Thus just to get to average working gas beginning inventories of approximately 3,100 Bcf, reductions of about 9 Bcf per week will be necessary to bring inventories into alignment with historical norms.
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