After breaking to a new 23-month high Tuesday morning in concert with higher cash market prices, natural gas futures sifted lower in the afternoon as traders liquidated long positions when it became apparent that $6.00 was not in the cards. The March contract closed at $5.762, down 0.4 cents for the session and nearly a dozen cents below its $5.88 high. At 84,273, estimated volume was unremarkable considering the market put in a new two-year top.

While futures prices failed to reach the $6.00 level Tuesday, cash prices easily surpassed that mark as cold weather made its way back across much of the eastern United States. NGI’s Henry Hub shot 54 cents higher to average $6.26. Gains in the market area were even steeper, led by Tennessee Zone 6, which blasted 184 cents higher to average $8.25 Tuesday.

After briefly trying to keep pace with the cash market, natural gas futures sold off in the afternoon. Several traders contacted by NGI were not surprised by the cash-futures decoupling, and pointed to the fact that the physical prices traded Tuesday were for Wednesday delivery, while the futures market is for delivery no sooner than March 1.

And although below normal temperatures are predicted for much of the eastern half of the nation for the next 10 days, conditions are set to moderate into the middle of the month, according to the National Weather Service.

Also of bearish influence are technical factors. Citing the confluence of long-term resistance at $5.93 and overbought conditions, Tom Saal of Miami-based Commercial Brokerage Corp. looks for a sell-off, at least in the short to intermediate term. However, he is quick to note that until the market’s back is broken, which will come on a drop below trendline support in the $5.50 area, he would be a buyer of dips.

For Kyle Cooper of Salomon Smith Barney, meanwhile, the March-April spread is the focal point as he remains short March and long April at a 35-cent premium. He looks to cash that trade when the spread contracts to near the 20-cent level. At Tuesday’s close, March was at a 25-cent premium to April.

Looking ahead, storage will take center stage in the futures arena Thursday morning when the Energy Information Administration releases its latest report. Expectations ahead of that report are calling for a 170-210 Bcf withdrawal, which if realized would easily exceed the year-ago draw of 78 Bcf as well as the five-year pull of 111 Bcf. At 1,729 Bcf on Jan. 24, stocks were 681 Bcf less than last year at that time and 190 Bcf below the five-year average. Although analysts agree that storage is probably sufficient to cover this winter, they fear that the market will end the heating season at such low levels that injections this summer will have to be considerable. If they are not, the market will begin next heating season at severely depleted inventory levels.

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