Despite expectations for further weakening in natural gasfutures yesterday, the market surprised many observers by movingsharply higher after the American Gas Association reported a secondconsecutive weekly 78 Bcf increase in gas storage levels.

After plunging below $4.10 early yesterday and testing thedownside, July sprung much higher following the AGA report andended the regular trading session up 9.8 cents to $4.256, or about5.9 cents from its high of $4.315. The market also continued higherin last night’s after-hours Access trading session. As of 5 p.m.July was up another 6.4 cents to $4.320.

Weekly storage injection numbers have become very much like staralignments in astrology. One week they mean one thing, and the nextweek they mean another. Last week, the 78 Bcf weekly injection hadan extremely bearish impact on natural gas prices despite causingan increase in the year-on-year storage deficit. July plummeted 35cents following the 2 p.m. report to end the day at $3.945. Butyesterday’s 78 Bcf injection, which was 15 Bcf more than during thesame week last year, prompted an immediate 20-cent jump over minorresistance at $4.27 to a daily high above $4.30.

“This week we’re going to call that bullish,” said one futuresanalyst. “If you’re not one of the guys who are throwing thousandsof contracts at the market to help create these moves, it’s reallya coin toss.

“Mostly this is a matter of pushing the price around in order toexploit vulnerability,” he added. “Traders don’t care whether theAGA number is actually bullish or bearish. What they care about iswhether they can run buy stops or sell stops and skim a profit outof the market. If the locals focus their orders well enough, theycan move this thing. The price action right around when the data isreleased is crucial.”

The move above $4.27 could be constructive, said a broker, “butI’ll tell you I don’t trust this market any further than I canthrow it. Okay, we ran some buy stops. We cleaned out some paper.We’re attempting to paint a bullish picture, but I don’t think thatthe fundamentals are really strong enough. Nothing has changed. Dowe deserve to retest the top of the range at $4.555 and $4.575? Dowe have any solid prospects for trading beyond that ceiling? Basedon what I see fundamentally right now between the AGA numbers andthe weather forecast, I would have to say no.

“It looks like they want to chase the market higher. We’ll findout if it can fly or whether its parachute will fail to deploy andit’s going to crash instead,” he added. Key support remains at $4and $3.80.

Despite a slight reduction (15 Bcf) in the year-on-year storagedeficit, the storage picture remains pretty much the same.Currently working gas levels are 194 Bcf lower than the six-yearaverage and 427 Bcf lower than levels at the same time last year.The situation in the producing region is the worst. Levels there,according to the AGA, are 39% (253 Bcf) below levels at the sametime last year and 23% (or 118 Bcf) below the six-year average. Inthe key eastern consuming region, storage levels are 14% (111 Bcf)below the six-year average and 22% (200 Bcf) below levels lastyear. And in the western consuming region, storage levels actuallyare 35 Bcf higher than the six-year average but are 26 Bcf belowlast year’s levels.

In addition, the National Weather Service’s most recent six- to10-day outlook is calling for another large section of above normaltemperatures stretching from the Rockies eastward across the U.S.with a small pocket of normal temperatures over the southeasterncoast, Tennessee and the Carolinas.

In the near-term, however, the heat is cooking the West, whereit is expected to remain dry and hot for the next few days. Highpressure offshore and onshore is allowing temperatures to reachrecord levels across much of the desert Southwest and California.

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