Rebounding from two selling legs early in the session, natural gas prices shot higher Tuesday afternoon as weak shorts were forced to cover their earlier sales. At the closing bell the April contract had settled at $3.018, down 0.3 cents on the day but well above its earlier low of $2.86.

Traders were quick to point to the potential for bullish storage news today as a reason for the late surge in futures prices. The American Gas Association will release its latest estimates of storage stocks at 2 p.m. EST today and most market watchers expect the report to show a sizeable 110-140 Bcf drawdown. If a number of that magnitude becomes a reality, it will dwarf last year’s comparable 75 Bcf withdrawal as well as the six-year average takeaway of 78 Bcf. Upon learning that a whopping 132 Bcf was withdrawn from storage for the week ending Mar. 1, traders bid the April contract up 10 cents to close at $2.566 last Wednesday. However, that was just the beginning. Since that time, the market has tacked on additional gains of nearly a half-dollar.

Another potentially bullish factor — although more subtle than storage — is the latest Commitments of Traders Report released Friday. Following three straight weeks of decreasing their short positions, non-commercial accounts actually increased their shorts holdings from 23,876 to 25,981 during the week ending March 5, according to the Commodity Futures Trading Commission. Since beginning to liquidate their then record level of shorts back in late January, the non-commercial segment has pressed prices off spot lows at $1.85. Because the non-commercial segment of the market typically stays their course once they begin to change their exposure profile, it is believed that last week was just a temporary blip that only gives them more short positions that they will eventually liquidate.

In daily technicals, April has clearly defined support and resistance at similar lows and highs from Monday and Tuesday at the $2.83-86 and $3.03-04 levels. A break of either threshold would be a victory for either the bull or bear that pressures it though that level. Tim Evans of IFR Pegasus in New York favors a push to the downside and backed this with a $2.94 sell-stop that was initiated on the dip lower yesterday. A tightly placed buy stop at $3.04 is waiting to limit his losses if the market proves him wrong.

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