Following the recent trend of countering the preceding day’s price move, May natural gas futures on Tuesday notched a $3.879 low before rebounding to close at $3.975, up 3.1 cents from Monday’s finish.

While Tuesday’s gain was only a fraction of Monday’s 9.5-cent decline, some market watchers saw the back-and-forth trend as confirmation of the market being in a sideways chop. “Fundamentally, the dynamic of a growing supply surplus is tending to restrict rallies while price sell-offs are still being limited by a penchant on the part of the funds to lighten up on short positions on occasional dips below the $4 mark,” said Jim Ritterbusch of Ritterbusch and Associates

Other traders weren’t too comfortable with natural gas prices below $4. “Sure we’ve moved back below $4 in the last few days, but I wouldn’t want to be short here,” said Julio Sera, a broker with Hencorp Futures in Miami. “We are now in the shoulder season, but in a month or two we’re going to be looking at hurricanes and summer heat. Storage levels are comfortable and the funds are shorter than the market would really like, but I don’t think the market has anywhere to go but up.”

Despite the bullishness, Sera wasn’t ready to anoint the $3.810 low from April 1 as the bottom. “I’m not saying the low is in place, but I don’t see anything motivating natural gas below $3.500 or $3,” he told NGI. “There is greater risk to the upside than downside, so I wouldn’t want to be short for long below $4.”

In addition to summer heat and hurricanes, Sera said the market is also paying close attention to the progress of the Senate Banking Chairman Christopher Dodd (D-CT)-sponsored financial reform package. “If the bill makes its way through Congress and gets passed, it will be interesting to see how the markets react,” Sera said.

Legislation that was unveiled by Senate Agriculture Committee Chair Blanche Lincoln (D-AR) Friday, and which is scheduled for a one-day markup Wednesday (see Daily GPI, April 20), would be folded into the Dodd legislation if it clears the Senate agriculture panel (see Daily GPI, April 19). The bill seeks to rein in commodities market speculation by forcing over-the-counter derivative trades onto regulated exchanges and clearinghouses. And as expected, it would include an exemption for large commercial traders who use derivatives to hedge the risk associated with trading of physical products.

The bill could significantly restrict trading by large Wall Street banks (see related story).

Economy bulls’ ears perked up Monday with the news that industrial demand may be increasing. Expectations had been that the March figure would show a 1.1% gain in Monday’s release of data on leading economic indicators by The Conference Board, but the actual figure came in at a 1.4% improvement. Further enhancing the positive economic picture were revisions to January and February data. February was raised to 0.4% from 0.1%, and January was revised upward to 0.6% from 0.3%. Much of the gains came from an improving manufacturing sector, the report said.

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