Stopping the streak of consecutive days of higher settles at four, natural gas futures traders took a breather Wednesday ahead of what is expected to be a bullish storage report on Thursday. February natural gas traded in a slim $7.350 to $7.540 range before settling at $7.421, down 17.6 cents on the day.

Some of the top brokers said recent price levels up in the $7.500 area have given them reason to start thinking about sell spots. “We are trading pretty flat with the cash market. I see first support for futures at $7.350, which we tested Wednesday,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “Below that I have $6.920. I think this thing is a sale. I am waiting for it to rally above $7.550 so that I can really feel good about selling it.

“Traders tried to rally the futures market Wednesday morning and while they had some success in the February contract, the March, April, May and June contracts were selling off,” Kennedy added. “I think traders are paying attention to WSI Corp.’s recent weather forecast through April, which is calling for warmth. That is the first forecast we have for that time period. If anyone else comes out with one that is even similar to that one, then look out below for falling prices.”

WSI said earlier this week in its latest seasonal outlook that between February and April the northern two-thirds of the United States should expect warmer-than-normal temperatures, with below-normal temperatures confined to the South. (see Daily GPI, Jan. 23).

“While it looks like temperatures are going to be much below normal until the middle of February, it appears a significant warming period is to follow,” Kennedy said. “I think that is part of the reason we saw our first settle lower in five days. People are also waiting to see a corroboration of a big draw in Thursday’s storage report for the week ended Jan. 19. We know we had big demand last week due to the cold, but the cash market didn’t respond. The reason it did not respond is because people were pulling from storage rather than getting it off the market, which is why I am looking for a 189 Bcf pull. While that will likely produce a knee-jerk reaction higher in futures, we will need a couple of those linked together to really make any kind of meaningful dent in this storage surplus.”

Current thinking is that this week’s Energy Information Administration (EIA) inventory report will show a stout triple-digit withdrawal more in line with seasonal norms. According to a Bloomberg survey, working gas inventories fell by 171 Bcf, the median of the survey, for the week ended Jan. 19. Estimates of the survey ranged from declines of 150 Bcf to 181 Bcf.

A 171 Bcf withdrawal falls in line with historical norms. According to EIA figures, the five-year average is 160 Bcf although last year only 76 Bcf was withdrawn. A Reuters survey of 18 industry players is expecting an average withdrawal of 176 Bcf. The ICAP storage options auction held Wednesday afternoon produced a 174 Bcf consensus withdrawal expectation.

The difficulty of pegging down an estimate this week is because last week was not a period of normal weather. Data from the National Weather Service shows that for the week ended Jan. 20, major energy markets failed to meet their norms for seasonal heating degree day (HDD) tallies. New York, New Jersey and Pennsylvania recorded 227 HDD, or 37 below normal, and the industrialized states of Ohio, Indiana, Michigan, Illinois and Wisconsin endured 277 HDD, or 20 below the norm. New England was also below normal for the week ended Jan. 20.

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