After testing the $6 resistance level on Monday, May natural gas futures raised the white flag early on Tuesday, retreating 22.1 cents to close at $5.788 on heavy volume, with 92,904 contracts changing hands.

Following the $6.009 close Monday, the prompt month wasted no time in getting back under $6 as the contract posted a steady decline all day. Trading for the session occurred within the $5.730-5.960 range.

“Basically it’s the $6 area,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “What we have done here is test the upside of what has been the trading range and the resistance is there. So now we are going to test the first support on the downside of the trading range, which is $5.71.”

As to whether buying will be there, Kennedy said he did not know. “If it isn’t, then maybe you can get to $5.50, but I think that would be about it,” he said. “We are reconfirming both extremes of the trading range and that’s it. It’s really not going anywhere.

“You had some profit-taking and trade selling today,” he added. As for the remainder of the week, Kennedy said, “I think we are going to probe the lower end of what’s been our trading range and see what it is made of.”

Some analysts cited crude’s weakness Tuesday as reason for natural’s decline. After a number of up days, Nymex May crude on Tuesday settled 63 cents down at $37.21/bbl. Tim Evans of IFR Energy Services said, “As we’ve been noting, the fundamental support for the recent push over $6.00 was largely lacking, with gains most predicated upon the sympathy generated by a rising petroleum complex. Now, with crude oil taking a day off from its own uptrend, the natural gas market is vulnerable to a test of the downside.”

Headed toward the Energy Information Administration’s storage report on Thursday, Evans said he expects to see “a 10-30 Bcf net injection that would be somewhat bearish relative to the 9 Bcf five-year average build and even more bearish compared to the 46 bcf draw posted a year ago.” He added that he doesn’t expect the storage report to save the futures price from further erosion.

Kyle Cooper of Citigroup said that based on early projections, inventories should easily exceed 3,000 Bcf by Oct. 31. “Our final estimation for this week’s report has been revised higher as pipeline data indicates a withdrawal only marginally below last week,” Cooper said. “Our final estimation for the week ending April 9 looks for a build between 11 and 21 Bcf.” He noted that while temperatures would suggest a much smaller injection than last week, physical gas flows on some pipelines suggest only a slightly smaller withdrawal.

“Thus, combined with a Good Friday holiday, our confidence is quite low,” he said. “A build in our range would be considered quite bearish from a temperature-adjusted standpoint.”

Also calling for a build, Lehman Brothers’ Thomas Driscoll said he expects a storage injection of 15 Bcf for the week ended April 9. “If we were to see a repeat of last year’s refill pattern, when storage injections totaled 2,470 Bcf and cooling requirements were near normal, storage could theoretically exit the refill season (Oct. 31) near 3.5 Tcf,” Driscoll said.

©Copyright 2004 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.