Proving the natural gas market’s current level of indecision, July natural gas futures traded a tight range on Tuesday before closing unchanged from Monday’s finish. The contract put in its $3.656 to $3.768 range in the first hour of the regular session, then wandered aimlessly before finishing at $3.731.

The lack of movement in natural gas was especially surprising given the fact that front-month crude futures closed north of $70/bbl for the first time in seven months. July crude gained $1.92 on the day to close at $70.01/bbl.

“We almost saw a perfect Doji candlestick on the daily natgas chart Tuesday, where we settled very close from where we opened the regular session,” said a Washington, DC-based broker. “Following the overnight session, we opened Monday’s regular session at $3.720 and we closed at $3.731. The Doji signals indecision in the market and clearly that is where the natural gas market is. Whether we go back and try to retest $3.400 or muster our way back up above $4.300 is the real question. We are definitely changing within a range, which is surprising given the evident strength in crude futures.”

In general the momentum appears to be bearish, the broker said. “The last little rally didn’t have that much support, so I think we’ll likely retest the bottom of the range first. In my opinion there are no real worries for a breakout to the upside at this time. After being faked out on the last little run-up at the end of May, all of the buyers have put their hands back in their pockets and are taking a wait-and-see approach. They are probably waiting for $3.200 as opposed to $3.400. Everyone has a mandate to try and buy or sell at the best price they can and they hate when they get faked out.”

He noted that everything hinges on the economy’s recovery. “The stock and oil market might want to anticipate a recovery, but no commercial guys have orders yet, so I don’t know what real recovery is out there at the moment,” the broker said. “I am also skeptical of the bulls’ rig reduction argument for higher prices. The drastic reduction of rigs normally sparks prices higher in a ‘normal’ market. However, we have this massive recessionary/depressionary economic backdrop. Basically, when supply starts to outpace demand in a normal market, we take some rigs out and it brings the market back into balance. However, this time we are way out of whack in terms of supply and demand, but it is because demand has dropped a whole basis level based on the drop in the economy. What we are seeing is not the normal mismanagement of supply/demand, which always happens in commodities because of their boom and bust nature.”

The broker added that the rig reduction is also not having the intended effect due to the type of rigs this time around. “What’s also different this time is the rigs that are remaining in service — shale drilling — are fantastically more productive in general. Sure, some of the shale rigs have been taken offline as well, but the remaining ones are still pumping out tons of gas.”

Overall, the broker said he is still leaning toward the fur and claws over the horns and hooves. “I think we are still in a trading range, but with a bearish bias due to the shoulder season and the economic worries,” he said.

Others believe the effects of recent rig reductions will soon come into play. Veteran market observer Peter Beutel of Cameron Hanover sees the natural gas market buffeted not only by the usual suspects, abundant storage and low industrial demand, but also the not-yet-apparent decline in production brought on by a falling rig count. “Rarely do we see one set of new factors suddenly take control, with the old factors just disappearing, never to be seen or heard again,” he said.

“The old influences, high storage levels and weak demand, do not seem likely to disappear suddenly for months. But these factors have long, grey beards now, and have given traders ample opportunities to discount them over the last 11 months as prices dropped from $13.694 to $3.155.”

According to Beutel, the next market mover will be “lower production, brought on by steadily declining rig counts. It is still up in the clouds on the horizon, waiting to touch down in a funnel — not here, yet, but coming.”

In the meantime short-term traders who watched July futures give up nearly 14 cents in Monday’s trading aren’t so sure of higher prices anytime soon. “The market spent most of [Monday] between $3.700 and $3.750, and I think it will test down to $3.400 by Thursday. We are looking at a couple of big builds the next couple of weeks, and the market should have a tough time rallying,” said a New York floor trader. “Even if crude oil picks its head up, I think the market is headed 30 to 40 cents lower. I don’t think crude oil is the big factor that it has been the last couple of weeks.”

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