After falling at a gut wrenching pace last week that left the April contract $1.56 lower than the previous Friday, the near month managed a 7.8-cent gain on Monday to $5.507. In fact, the three nearest contracts — April, May and June — all made gains while the further-out months lost a few cents. Analysts’ opinions were mixed, however, on the near-term and long-term direction of this market, and a war with Iraq is likely to make the future even less clear.

April jumped out of the box to a high of $5.570 shortly after the opening bell, but plummeted even faster to its $5.280 low by about 11:10 a.m. Throughout the rest of the day, bulls managed to gradually push it back up to its net daily gain. May ended the day 6.7 cents lower than April at $5.440, while June ended at $5.370, July settled at $5.320 and August ended the day at $5.295.

However, Cynthia Kase of Kase & Co. is confident this current upward formation is “corrective” in nature. “The market is expecting resistance to hold, and for prices to at least moderate, probably moving lower,” she said. “The less the market continues to correct higher, the more bearish that will be.

“It is likely that this formation will hold around $5.70 for April and $5.65 for May, although an extension could bring prices into the $5.90s without compromising its corrective nature,” Kase said in her weekly Commentary on Gas.

She also said that the lower the correction holds, the deeper the subsequent down move should be. She sees immediate support at $5.25 but a range of potential targets at $5.00, $4.92 and $4.71. “However, $4.71 is the most important of the three. This target comprises a key threshold below which a much more severe decline would be expected… If prices are able to break below this $4.71 support level, prices could decline all the way down into the low $3.00s.”

During a market decline, Kase said the June and July contracts “should track with the front of the market and prices could even go into contango” where the out-months are successively higher than the near-month contract.

Her “secondary” and less likely scenario is a rally that would burst into a trending pattern and move back at least into the mid-$6.00 with $6.40 as a key objective. “The market today does not appear likely to do that without new input from random events,” Kase said.

Just such an event could arrive shortly in the form of a U.S. war with Iraqi, noted Jay Levine of Advest Inc. War could make gas futures even more volatile and “a tough call on so many levels,” he said. Before April’s $5.507 close on Monday, Levine predicted a close above $5.50 could turn the trend back up. “Until that occurs, the trend remains down, if not still oversold.”

Craig Coberly at GSC Energy in Atlanta agreed the near- and intermediate term direction of this market now will be higher, based on an Elliott Wave chart pattern he has identified. There is “extremely strong evidence the three-wave declining pattern from the Feb. 25 high is complete… Price trends are now pointed higher. For how long and how high depends upon which one of two probable price paths gas follows,” said Coberly.

The less bullish path, he said, would push prices higher for two to three weeks until the near-month contract reaches a 50-100% retracement of the decline from the February high to between $6.86 and $8.64. In the more bullish scenario, “the rally is likely to terminate at one of two price levels; essentially at the $8.64 high or significantly above.” Coberly said it is impossible to say which path prices will take, but he’s confident the direction will be higher over the next two weeks.

Fundamentals are mixed currently with mild daytime spring temperatures in the 50s, 60s and 70s across most of the United States except for the Rockies and New England, and rising nighttime lows in the upper 30s, 40s and 50s. The National Weather Service’s six- to 10-day outlook calls for above normal temperatures over the Midwest, Midcontinent, and most of California and below normal temperatures over two enclaves: one over central Texas and another over New York and New England. Across the rest of the country, temperatures are expected to be normal.

In the bulls favor are working gas levels in storage, which are likely to fall to record lows with either this week’s report or next week’s report, according to data from the Energy Information Administration. A withdrawal of another 24 Bcf would put storage in record low territory, and bulls are likely to take that news and run with it. Last week’s report showed a 117 Bcf weekly withdrawal.

However, there may be an unusual factor thrown into the mix this year: early spring warmth. Thomas Driscoll of Lehman Brothers is expecting the EIA to report a 65 Bcf withdrawal this week but a 75 Bcf injection next week because of the mild weather. If his forecast holds true, working gas levels could fall to a record low but then quickly rebound to end March at more than 700 Bcf.

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