The bears’ case for lower prices in the natural gas futures market received a much-needed shot in the arm Thursday morning after the Energy Information Administration (EIA) reported that a well-below-consensus 11 Bcf was withdrawn from natural gas storage for the week ending March 12. The draw, which was exactly 100 Bcf smaller than the previous week’s report, plunged April natural gas futures values to a low of $4.054 before the contract finished Thursday’s regular session at $4.085, down 21.8 cents from Wednesday’s close.

After trading lower ahead of the report, April natural gas futures were hovering around $4.230 just prior to the report’s 10:30 a.m. EDT release. In the minutes that immediately followed, the prompt month contract went into a freefall.

With futures losses getting smaller and smaller earlier in the week, many in the trading community were openly wondering whether the bear move had run its course. Now with the break below important support at $4.260, some traders say the path to sub-$4 pricing appears to be open. (see Daily GPI, March 18). The $4.260 price level stands roughly as a 50% pullback from the September to January rally.

Citi Futures Perspective analyst Tim Evans, who had been expecting a 35 Bcf draw, called the report “bearish,” adding that it likely will give the downward move the shot in the arm it had been needing.

“The net withdrawal was well below the consensus expectation and a clear bearish step down from the 65 Bcf five-year average for the period, bumping the year-on-five-year average surplus up to 73 Bcf,” Evans said. “This report is going to reinforce the overall bearish market sentiment here, especially with warm temperatures in the current week and the 11-to 15-day timeframe to drive expectations for more bearish storage reports to follow.”

One New York broker said Thursday’s session gave futures bears renewed life. “Over the first few days of the week it looked like the move lower, which began in earnest on Feb. 18, was petering out, but Thursday’s bearish storage pull and the resulting 20-plus cent drop breathes new life into the trend. We’ve definitely opened up the possibility of trading with a $3 handle.”

Going into the report, a Reuters survey of 28 industry players produced a withdrawal range of 11 Bcf to 44 Bcf with the average expectation coming in at a 28 Bcf draw. Bentek Energy projected a withdrawal of 23 Bcf.

In addition to coming in well below the five-year average draw of 65 Bcf, the actual 11 Bcf draw came in well under last year’s date-adjusted 42 Bcf draw for the week.

According to the EIA, working gas in storage stood at 1,615 Bcf as of March 12. Stocks are now 40 Bcf less than last year at this time and 73 Bcf above the five-year average of 1,542 Bcf. For the week, the East and West regions removed 19 Bcf and 6 Bcf, respectively, while the Producing Region swung to injections with a 14 Bcf addition.

With the arrival of the shoulder season putting less influence on the supply-demand fundamentals, at least in the near term, some analysts are turning their attention to technical factors. “Although discussion of fundamentals is becoming difficult with the heating cycle approaching completion, we will continue to emphasize an extremely negative chart picture where fresh price lows have been an almost daily feature during the past month,” said Jim Ritterbusch of Ritterbusch and Associates. In his view, each new low “tends to embolden the funds that remain comfortable on the short side of the market in spite of an exceptionally large net short futures position.

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