Continuing the trend this season of mimicking the crude oil futures market, the June natural gas futures contract followed its liquid big brother lower on Monday, closing down 11 cents at $6.184. The drop was in contrast to the start of last week, when June natural gas futures enjoyed a 36.9-cent breakout gain.

June Crude futures closed $1 lower Monday at $38.93 after the Saudi Oil Minister Ali al-Naimi called for an OPEC production increase of at least 1.5 million b/d. The contract hit a $40 high last Friday.

“Natural gas prices were tugged to the downside by falling petroleum prices on Monday, which undercut bullish sentiment for the market, although we see some other potential concerns,” said Tim Evans if IFR Energy Services. “While our own study of past cycles suggests that heat during May can help a longer-term rally onto its feet, the impact may be more psychological than real.”

Evans said erosion below $6.12 would convert the recent range into a more convincing top, putting pressure on failed resistance at $6.01 and uptrend support now rising through $5.945.

“On the upside, a push back above $6.25 takes aim at the $6.36 highs from last week, with projected selling at $6.50-6.65 and longer-term opposition at $6.90-7.00 becoming objectives in the event prices are able extend their recent uptrend,” he said. “At the moment though, we think natural gas may have more work to perform on the downside before a longer-term advance can fully take hold.”

As an example, Evans said that warmer temperatures this week are forecast to result in heating degree day accumulations on a gas home heating customer weighted basis, to run 32 lower than normal, while cooling degree days will rise to just 12 more than is typical.

“While one side of the market doesn’t equate directly with the other, we do think this suggests that heating demand is dropping to a greater extent than early air-conditioning demand is being raised.” As a result, Evans said that while a warmer-than-normal summer is still a threat, the EIA storage data may remain neutral, or even somewhat bearish over the near term. For the week ended May 7, the analyst said he expects to see 60-70 Bcf in net injections to U.S. storage when the report comes out Thursday — not much different from the 64 Bcf build from last year or the 69 Bcf five-year average.

Thomas Driscoll of Lehman Brothers said he is looking for an injection of 65 Bcf for the week ended May 7. “We estimate that cooler weather (20 CDDs vs. 23 CDD last year) reduced cooling demand by about 3 Bcf versus last year,” he said.

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