After gapping lower at the open, natural gas futures turned higher Monday as non-commercial accounts covered shorts initiated in last week’s three-day, 64-cent price erosion. At the closing bell the May contract was 7.8 cents stronger for the session at $5.103.

Traders polled by NGI were agreed monday that the rally was set in motion once it became clear the market was not going to break beneath support. Forming the second (and lowest) of a potential “W” bottom formation, the $4.92 level has stuck out on just about every technician’s chart as a level the May contract must remain above if prices are to trend higher. The May contract matched the $4.92 level yesterday, but did not trade through it.

“We will know for sure [Tuesday] when the open interest figures are available, but my bet is that it was short-covering,” said Ed Kennedy of Miami-based Pioneer Futures. “Anytime you get such a large move lower, you are likely to get a little short-covering to follow. Commercials and more specifically producers, meanwhile, were good scale-up sellers on the move higher. Locals saw this opportunity and kept pushing the market higher,” he continued.

Looking ahead, Kennedy believes that in the absence of bullish or bearish weather outlooks, the market will likely consolidate Tuesday and Wednesday between support in the low $5.00 area and intermediate resistance above Monday’s high in the upper $5.10s.

However, the May contract may have a difficult time remaining range-bound through midweek and beyond. Not only are traders eagerly awaiting what is likely to be the last withdrawal of the storage season, but they are also focused on Salomon Smith Barney’s summer forecast, expected to be out later this week.

According to Thomas Driscoll of Lehman Brothers, the American Gas Association will report a withdraw this Wednesday of approximately 30 Bcf, versus 5 Bcf a year ago and 12 Bcf last week. That withdrawal forecast takes into account a 26 Bcf “haircut” (from an expected 56 Bcf withdrawal) due to Lehman’s expectation for continued decreased demand from the high absolute level of prices.

©Copyright 2001 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.