Spurred by a negative short-term technical outlook and coming onthe heels of bearish storage data, natural gas futures retracedlower Wednesday as traders took back gains notched during Tuesday’sprice rally. At the closing bell, April was off 24.6 cents tofinish at $5.041, 2.2 cents below Monday’s close.

According to the American Gas Association, 23 Bcf was pulledfrom underground storage facilities last week, bringing working gaslevels to 21% full at 688 Bcf. Against nearly all measuring sticks,last week’s withdrawal was bearish as it fell short of bothexpectations (35-70 Bcf) and last year’s draw (62 Bcf). However,the most discouraging factor for bulls may have been the breakdownof the withdrawal, which showed that the producing and the westernconsuming regions actually experienced modest injections of 3 Bcfand 5 Bcf, respectively. Last year at this time, the producingregion withdrew 15 Bcf and the west pulled 9 Bcf, according to theAGA.

Despite the low storage draw and the fact that there are only acouple more weeks before injections begin in earnest, severalmarket watchers are sticking by their forecasts that storage willdip to 650 Bcf level by the end of the withdrawal season. “We arestill looking for around 650 Bcf by season-end,” said Donato J.Eassey, an analyst with Merrill Lynch. “Keep in mind that it wascolder this week than it was last week. We will see the numberscome down between now and the season-end, but we kind of needed abreather there.”

However, storage was not the only thing affecting futures pricesyesterday. Also at work were technical factors, which dictated abit of a retracement following Tuesday’s abrupt move higher.Specifically, a Houston-based risk manager said that the market hasbeen very cognizant of the moving averages during this shouldermonth period. The inability of April to even test its 40-day movingaverage at $5.411 Wednesday after breaking above its 18-day movingaverage at $5.165 Tuesday, did not bode well for bulls, he said.

Looking ahead, he believes the market will be easier to readonce the April contract goes off the board. While April is a trueshoulder month with little in the way of storage injections orwithdrawals, May will give traders a glimpse of how the summer isgoing to shape up from a supply and demand point of view. Thatexplains why April prices have slumped lower relative to the summerstrip. There exists the possibility that warmer-than-normaltemperatures will fuel a summer price rally, especially ifdeliverability doesn’t increase. That has some people willing tosell the April contract and buy the summer strip. Since becomingthe prompt month on Feb. 26, the April contract has lost a net 5.6cents while the April-Oct. summer strip has sunk only 2.7 cents.

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