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Natural gas prices seen flaring higher

Nat gas inventories up 106 bcf

Natural gas prices, already up 5 percent in the past week, are seen heading higher and could get close to the key $5 level.

Natural gas futures were volatile on Thursday, after government data showed a surprise increase in gas inventories.

The U.S. Department of Energy reported an injection of 114 billion cubic feet for the week ended May 23rd, an increase of more than 5 percent from the week prior.

"The build of 114 bcf was more than the consensus 110 bcf forecast, implying a further modest weakening of the background supply/demand balance that could carry over into future periods," said Tim Evans, an energy futures specialist at Citi in a note to investors.

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But even though a greater-than-expected injection should be a bearish sign, technically minded traders see something else on the charts.

"All signs point up," said Peter Amadio, an options trader on the floor of the CME. "If you look at the daily chart, it appears that we could test the $4.75 level again. When you look at the weekly chart, it looks a little toppy, but suggests that we could test $4.80. Looking at the monthly chart, we go above $4.95."

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Amandio also suggests looking at the October contract should there be any severe weather.

"The October contract is the one that has moved when there were threats of hurricanes in the past, we've seen some wild ranges," he said.

—By CNBC's Jackie DeAngelis

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