Natural gas futures continued to test lower price levels Wednesday as the August contract recorded a low of $11.113 before rebounding to close at $11.398, still good for a 7.9-cent drop from Tuesday’s close. The market appeared to be quite comfortable with following spiraling crude values lower.

Market watchers were quick to credit crude futures with an “assist” for the continued decline in natural gas values. Crude bears, who received a boost from a friendly government inventory report, pushed August crude to a low of $132/bbl on Wednesday before it rebounded to close at $134.60, which is $4.14 below Tuesday’s regular session finish.

“I think we are seeing a lot of liquidation out there,” said Steve Blair, a broker with Rafferty Technical Research in New York. “People are just not that concerned that we have any sort of gas storage or supply problem here. When natural gas began the break last Monday and Tuesday, we basically broke down through a very sharp uptrend channel that was on the daily and weekly charts, which was significant because we had been in that upchannel for a long time.

“Crude is also playing an important part in this break. Crude is down big and there are a lot of things going on at once. We are hearing more and more in the crude sector about demand destruction and we saw a pretty bearish petroleum inventory report Wednesday.”

Blair said he finds the current price level in natural gas to be very interesting. “We have major support at $11.380 and $11.300. While we broke below both on Wednesday, we did not get the all-important close, so those levels are still intact,” he said. “If we close below $11.300, that would be a significant breakdown because our next major support level is down around $10.860. If crude continues to plummet, then all bets might be off in natural gas because we’re likely to go right along with it.”

Blair said the natural gas storage report Thursday morning could certainly play into whetherthe contract continues to drop. “The industry appears to be looking for an injection in the high 80s Bcf to the mid 90s Bcf, which would be a pretty solid build,” he said. “The storage picture looks pretty comfortable right now.”

While the current storm systems in the Atlantic don’t appear threatening, Blair said he would certainly advise keeping a close eye on things as the calendar approaches August.

Even as Tropical Storm Bertha is still spinning harmlessly well off the U.S. East Coast, AccuWeather.com is showing a tad more concern for the storm system that might become Tropical Storm Cristobal. “The system may have a rough time revving up at first due to its proximity to South America, but once it reaches the central Caribbean it will be free to turn into a hurricane,” said AccuWeather.com meteorologist John Kocet. “Long-range indicators suggest the storm will eventually track across the Yucatan and then head into Mexico without having any direct impact on the United States.”

Blair said if AccuWeather.com’s forecasted path holds, then crude operations might take a hit. “If it gets to the Bay of Campeche, that could be supportive to crude values, which might bolster natural gas futures a bit,” the broker said.

Taking a closer look at the Energy Information Administration’s storage report for the week ended July 11, which will be released Thursday morning at 10:35 a.m. EDT, a Reuters survey of 24 industry players produced a range of injection expectations from 71 Bcf to 102 Bcf with the average estimate calling for an 88 Bcf build. Golden, CO-based Bentek Energy said its flow model is indicating an injection of 96 Bcf, which would bring stocks 17.2% below the five-year high and 2.5% below the five-year average. The research and analysis firm expects a 63 Bcf injection in the East region and builds of 22 Bcf and 11 Bcf in the Producing and West regions, respectively.

The Industry’s expectations would appear to favor market bears when compared to last year’s 76 Bcf build and the five-year average injection for the week of 83 Bcf.

Revisiting Tuesday’s 48.2-cent plunge in August futures, some market technicians saw the move as indicative of hard times for market bulls and not just a short-term correction. “Having decisively broken below $11.770 on Tuesday, it appears that natgas is in for a multi-week long retreat, not a multi-day long pullback,” said Walter Zimmerman of United Energy. The problem for the bulls is that not only is the decline consistent with Zimmerman’s Elliott Wave-based analysis but also seasonal tendencies. “This bearish outlook blends well with the seasonal tendency for a corrective decline into late summer,” he said in a Wednesday morning note to clients.

Zimmerman pegs “potential” support at $11.180, $11.075 and $10.830, but if the multi-week retreat is to remain just that and not turn into a full-fledged bear market, then $10.625 must hold.

Typically trends in futures markets persist when fundamentals and technicals align, but bears need fundamentals to fall into alignment with the bearish technicals to generate a pronounced downtrend. Bulls still have plenty of material to work with.

The near-term weather outlook may not be of much assistance to the bears. The National Weather Service in its July-August-September forecast shows above-normal temperatures for New England and the Northeast. North and east of an arc from Maine to eastern Ohio to North Carolina is expected to have above-normal temperatures as is a big chunk of the Desert Southwest extending from eastern California and including Nevada, Utah, Arizona and New Mexico.

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