Supportive crude prices, no update on the Independence Hub repairs and the first year-on-five-year average storage deficit in almost four years continued to push natural gas futures higher in Tuesday’s trade, but not high enough to break out of the recent trading range. After recording the day’s high of $10.280 in morning trade, May natural gas futures put in a low of $10.165 before closing out Tuesday’s regular session at $10.205, up 15.2 cents from Monday’s close.

The failure to make a new high in natural gas was even more surprising as crude futures shot to a new all-time high price during Tuesday’s session before settling at a new all-time record close. May crude reached a high of $113.90/bbl before closing out the day at $113.79/bbl, up $2.03 from Monday’s close.

“Market momentum is finally shifting a little higher here, but we weren’t able to break through that $10.314 high from last Thursday,” said a Washington, DC-based broker. “We got as high as $10.280 Tuesday, but ended up backing off. We are modestly bullish here, but we need to see a punch through $10.320 with some conviction in order to be able to say that something else is indeed going here. This is even more the case as crude futures took off and accelerated through most of Tuesday afternoon as natural gas chopped around.

“In natural gas futures we are seeing this rising triangle formation where we keep making higher lows but fail to get above that $10.300 level. If I had wanted to see something really bullish, I would have wanted to see some follow-through on April 10. Since that failure, we have sort of petered out here as the triangle keeps narrowing as the angles come together. It tends to have less force the longer the move plays out this triangle pattern. The more times we get up to that $10.300 area and fail, the less likely we’ll get through in my opinion. This consolidation pattern is getting a little bit extended.”

The broker noted that while storage supplies are still relatively healthy, the fact that the country’s inventory is sitting well below previous expectations has rattled traders. “The big overhang of supply during summers past that was so much in our minds is now gone. As amazing as it is, we worked our way through it, and a colder than expected spring and lower production levels helped as well,” he said. “All of these things have managed to change the dynamic, and that is certainly the reason that the market is fairly comfortable with a $10 handle. The storage and supply concerns are why we are currently in the $9-10 price area as opposed to the $6-7 price area. This just shows that markets do work, even if they are sloppy sometimes.”

Analysts suggest that to bring storage up to snuff by the end of the injection season there will not be much room for supply interruptions, whether in the form of excessive electrical generation demand diverting supplies or shut-ins induced by tropical weather. “We continue to see a short supply as providing little margin for error as far as supply losses are concerned,” said Jim Ritterbusch of Ritterbusch and Associates. He added that the industry might take some comfort in anticipated small injections in the Energy Information Administration’s (EIA) inventory report — for the week ended April 11 — in the neighborhood of 10 to 20 Bcf, but “a sustained narrowing in the supply deficit…will require months and not weeks as a high-price environment will need to be maintained in order to steer imports toward the U.S.”

On another level the early concern over supplies is understandable, but currently the EIA in its Short-Term Energy Outlook is forecasting supplies at the end of October at a plump 3,455 Bcf. Even during the disastrous 2005 season, punctuated by the destruction caused by Hurricanes Katrina and Rita, season-ending stocks still came in at 3,194 Bcf.

The six- to 10-day weather outlook should facilitate storage injections. In its morning report MDA EarthSat forecasts above-normal temperatures across a broad swath of the interior U.S. from Texas and Louisiana north to Wisconsin, Michigan and Ohio. “To the west of the Appalachians, warmth from Texas to Eastern Canada is better supported by both [American and European] models through much of the period. However, strong cold in the West does make steady progress eastward,” said Matt Rogers, MDA EarthSat meteorologist.

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