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Futures Near Unchanged as Traders Await Fresh Storage News

After running higher to record a $6.450 high on Thursday, February natural gas futures came off in the afternoon and settled at $6.162, nearly unchanged from Wednesday's $6.163 close. Going forward, most weather forecasts for the heavy gas demand East continue to see warmer-than-normal temperatures, while AccuWeather meteorologist Joe Bastardi sees a bit of a cold snap hitting next week.

One broker said the horizon still contains zero supportive fundamentals for bullish traders to seize upon. "We have had a couple of big down days recently, so I think the move higher that we saw most of Thursday was nothing more than a retracement higher," said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. "There really is no kind of fundamental news out there to boost prices. There is no super-deluxe weather forecast for extreme cold weather that is getting anyone nervous yet. Until we get one, this market is going to grind lower.

"I think $6 remains pretty strong support due to its psychological significance," he added. "We got down there last week and we will have to see if the market can do it again. This is not rocket science here. Winter has always been the natural gas market's big event. To date, this winter is not living up to that classification."

February crude oil futures experienced a little bit of deja vu on Thursday. After losing $2.73 to $58.32/bbl on Wednesday, the contract declined by exactly $2.73 on Thursday to close at $55.59/bbl.

Weather remains key to the direction of natural gas futures prices. Bastardi said Thursday that he expects eastern energy markets next week to experience colder-than-normal temperatures. His prediction stands in stark contrast to El Nino-driven forecasts that show continuing mild temperatures. "The shot of chill coming through the [Great Lakes] and Northeast next week is an enigma. It's quite cold on some [modeling] runs and I think this is going to chop up the temp deviations next week from Monday on," Bastardi said.

However in its most recent six- to 10-day temperature forecast, AccuWeather itself is showing below-normal temperatures west of a line from western North Dakota to southern California. East of a line from northern Wisconsin to southeastern New Mexico is forecast to be above normal.

Likewise, the National Weather Service in its most recent six- to 10-day forecast covering Jan. 10-14 shows above-normal temperatures east of a line dividing Texas in half up along the eastern border of Wisconsin.

"I would watch for a swath of snow followed by lake effect (snow) running from Minnesota to New England in the Monday-Tuesday period and the chance of a vigorous though short-lived lake effect outbreak from I-80 north in Pennsylvania and much of the New England and New York ski country," Bastardi predicted. "I have confidence that there is plenty of bite in this dog of a winter later," he said.

Short-term traders are circumspect about the market's near-term direction. "Much of the selling Wednesday was fund oriented and seemed to follow the crude oil lower," said a trader. He said that a couple of local traders tried to push the market lower from $6.14, but it didn't work. "There was no follow through," he said.

"If funds don't come in and buy at the $6.10-to-$6.14 level, then I would say that the gains of last week were short covering and the market is likely to work still lower."

Traders attention is focused on the Energy Information Administration's storage report for the week ended Dec. 29, which is being released Friday morning due to the recent holiday schedule.

A Reuters survey of 20 industry players is calling for a median withdrawal of 57 Bcf, while the ICAP auction resulted in a 49.5 Bcf withdrawal expectation. For the similar week last year 22 Bcf was removed from storage. The five-year average withdrawal for the week is 100 Bcf.

Golden, CO-based Bentek Energy is expecting a 45 Bcf pull using its Flow model methodology, while its Supply/Demand Balance model projects a storage withdrawal of 51 Bcf. The Flow model expects a 30 Bcf withdrawal in the East region, an 11 Bcf withdrawal in the West region and a 4 Bcf pull from the Producing region.

"From this week last year until the first of April, stocks declined by a total of 946 Bcf, or about 73 Bcf per week," Bentek said in its weekly report. "If this year tracks that same rate of decline, stocks for the withdrawal season would end at 2,130 Bcf, or almost 26% over last year's historically high inventory level."

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