After bumping their head on the $7.34 level twice during the session, April natural gas futures on Tuesday ultimately appeared to be intimidated by the significant weakness displayed by big brother crude.

April natural gas futures settled down 7 cents at $7.248, while the May contract closed 8.5 cents lower at $7.365.

On the crude front, the newly minted May contract as prompt month sold off $1.43 to settle at $56.03/bbl, leading some to believe that crude futures may have found a top at the $57.60 all-time high set last week. April heating oil closed 2.69 cents lower at $1.5466/gallon.

“Falling petroleum prices could join in undercutting support for natural gas,” said Tim Evans, an analyst with IFR Energy Services. “With the moderation in the temperature outlook, the natural gas market is better able to take its eye off the day-to-day concern of lining up enough gas to keep warm and look a bit further ahead instead.”

Discussing the May natural gas contract, Evans said futures have backed away from an overnight peak of $7.49, failing to breach the $7.52 high from March 17 or to challenge the rising channel resistance now climbing through $7.68. “Instead, prices are looking back toward recent lows at $7.23 and $7.17, as well as the uptrend drawn under the lows since Feb. 17, now at $7.11,” he said. “Any further slippage would tend to confirm at least an interim trading top, with the $6.76-6.77 lows of March 7-11 as the next major target.”

While noting that natural gas support looks unstable, Evans said futures will still have to navigate past a potentially supportive estimated 90-110 Bcf net withdrawal from natural gas storage for the week ended March 18. He added it is quite possible that the market is already suspecting that Thursday’s Energy Information Administration report may be the last in a series of hefty withdrawals.

“The variance with the 51 Bcf five-year average decline will be supportive in economic terms, but it may not do that much for the market psychologically,” Evans said. “Instead, we think the market will quickly look ahead to the seasonal warming trend and even the above normal temperatures on tap for next week and focus anew on the remaining storage surplus.”

Data suggests that weather will be of little help in raising prices. Traders counting on a continuation of early March cold to increase demand can expect no more than average late-winter/early spring conditions. This week’s accumulation of population-weighted heating degree days (HDD) forecast for the Mid-Atlantic and industrial Midwest will do little to increase gas consumption by commercial and residential users.

For the week ending March 26, the National Weather Service (NWS) expects average HDD for both the Mid-Atlantic states of New York, New Jersey, and Pennsylvania and the East North Central states of Wisconsin, Illinois, Indiana, Michigan and Ohio. The Mid-Atlantic is forecast to receive 172 HDD, only two above normal and the East North Central 179, also two HDD above normal for this time of year.

The NWS shows that from the beginning of the cooling season which starts July 1, both sections of the country have been slightly warmer than normal. The Mid-Atlantic has accumulated 4,768 HDD, 109 or 2% fewer than normal. The East North Central has tallied 5,067 HDD, 6% or 339 fewer than normal.

On Friday, data released by the Commodity Futures Trading Commission showed that noncommercials had decreased their net short position of 14,003 as of March 8 to a net short position of 7,044 as of March 15. By moving out of short positions and into long positions, these noncommercial traders could propel prices higher, said Tom Saal of Miami-based Commercial Brokerage Corp.

However, Saal noted that when and if these noncommercials establish a net long position of about 20,000 contracts, there is a strong likelihood that prices will decline. “When the large speculators get net long, look to sell,” he said.

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