Despite giving the impression in morning trading that Wednesday would record a down day, July natural gas futures bounced off a $5.31 low to settle at $6.415, up three-tenths of a cent on the day.

Prices in both natural gas and crude tumbled following separate bearish oil inventory reports from the American Petroleum Institute (API) and the Energy Information Administration (EIA). API estimated last week’s build in crude stocks at 4.887 million barrels, while the EIA’s report showed that stocks rose by 2.5 million barrels to 305.4 million, the highest level in nearly two years.

“Natural gas sold off with crude on news of the API report, but unlike the crude, natural gas didn’t have any follow through,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “It doesn’t look like anybody’s a dominant bear or bull.

After falling as low as $37.32/bbl, August as the newly minted crude oil futures prompt month, climbed back up to close at $37.57/bbl, but still recorded a 68-cent loss on the day. With the crude inventory reports out of the way, natural gas marketwatchers turned their attention squarely to the EIA’s natural gas storage report for the week ended June 18.

“We’re locked in this little trading range, and I think we will stay that way until we see the storage report [Thursday],” Kennedy said. “Most of the people who trade — not analysts — are grouped around the 80-90 Bcf number. I think they are wrong, but that appears to be what the market expectations are.” The broker said he is looking for a build of 98 Bcf when the report comes out at its normal time Thursday morning.

Kennedy said it would be interesting to see what happens if the market replaced the six in front of the futures price with a five. “I still have the suspicion that the utilities are way under-hedged and are liable to jump in and support this market if the market falls below $6,” he said.

Tim Evans of IFR Energy Services equated trading on Wednesday to “treading water” ahead of the EIA’s storage report. “The natural gas market has spent the day idling within Tuesday’s range, largely just killing time ahead of Thursday’s DOE storage report,” he said. “While we expect the 75-85 Bcf net injection to be fundamentally constructive relative to the 94 Bcf five-year average build, we think the market has already discounted this news via last week’s rally.”

Evans said that without some shift in the weather outlook toward heat and hurricanes, he believes that natural gas is vulnerable to a further price decline, particularly if crude oil confirms that direction.

The storage report will be compared to lofty historical data. In addition to the 94 Bcf five-year average, the storage number will also go up against last year’s mammoth 127 Bcf build. With storage currently sitting just 9 Bcf above the five-year average, this week’s report could conceivably put the country back into a deficit to the five-year average.

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