Following the 79.2-cent combined drop from Monday and Tuesday, August natural gas futures on Wednesday decided to explore the upside for a change. After reaching a high of $5.930 in afternoon trading, prompt-month natural gas settled at $5.862, up 30.7 cents on the day.

Not only did natural gas futures climb Wednesday, but they did so on a day that crude continued to fall from its record highs last week. After putting in a new high of $77.95/bbl on Friday, August crude closed Wednesday at $72.66/bbl, down 88 cents on the day.

Looking for answers as to the natural gas market’s direction reversal Wednesday, some traders were left scratching their heads. Alluding to the excuse given Tuesday that natural gas futures followed crude lower, one trader said “that excuse sure doesn’t work” for Wednesday.

Expectations for a smaller than normal storage injection report Thursday morning might also have had something to do with Wednesday’s buying in natural gas, but some market experts discounted that theory. “While some traders might be anticipating a smallish injection to be revealed Thursday morning, at this stage — does it really matter?” said a Washington-DC-based broker. She noted that at 2,704 Bcf, working gas levels are “more than comfortable” for this time of year.

“We were really busy in natural gas today. We did a lot of buying,” she added. “However, we almost had an inside day Wednesday within Tuesday’s activity. It was interesting because now that the market has come down, a lot of people who need to be buyers of basis have also been looking to secure some of those deals.”

The broker noted that some trends can be gleaned from the price charts. “If you look at the chart, it is kind of a bizarre pattern. We keep selling off…then having three bars of violent up move, but then we give it all back and make a new low, and start all over again,” she said. “We’ve been in the ‘give it all back’ mode, then we bounced off Tuesday’s lows, so now the question is whether there is a new low coming if you follow that pattern. If you do follow that pattern, we should see a new low in a day or two. Overall, I still think there is a lot of sentiment out there that the old $5.40s will be taken out and there will be a new low still yet to come in this market.”

Technical traders who follow seasonal price cycles see natural gas prices struggling to mount any kind of bullish offensive. Walter Zimmerman of United Energy models natural gas prices seasonally in the form of a winter to spring rally, a spring to summer retreat and then a rally into November.

Currently the market is in its seasonal spring to summer decline, but the downtrend is likely to be enhanced due to longer term cyclical forces at work. “Beyond a near-term bounce, the situation for the bulls looks quite grim. Although natural gas has just completed an average seasonal decline from the $8.280 high (April 19), the (longer-term) time cycle influence is maximum bearish into 2008, and in the near-term this should manifest itself as a bearish skew of the seasonal cycle in the form of a deeper than average seasonal retreat.” He added that the bearish case target is $3.390.

Zimmerman acknowledges the strong tendency of natural gas prices to rally into the November-December period, but noted that history suggests that during periods of bearish time cycle influences, the seasonal declines will last longer and fall farther than historical average seasonal declines. “During these bearish time cycle influences preseason rallies will start later, end earlier, and rally a shorter distance than the seasonal averages would otherwise suggest.”

Looking at the Energy Information Administration’s (EIA) natural gas storage report for the week ended July 14, Most industry expectations appear to be looking for an injection in the 60s Bcf. According to a Reuters survey of 22 industry players, the average of the expectations is for a build of 62 Bcf. Golden, CO-based Bentek Energy is predicting a build of 67 Bcf. The ICAP derivatives auction held after the close of Nymex floor trading Wednesday revealed a consensus build expectation of 63 Bcf.

The storage number revealed Thursday morning at 10:30 a.m. ET will be compared to last year’s 59 Bcf injection and the five-year average build of 79 Bcf.

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