After briefly testing resistance in the $2.00 area Wednesdaymorning, the futures market continued its journey lower as traderswere able to look past the short-term bullish impacts of coldweather and associated pipeline operational flow orders to focus onthe longer-term implications of storage and forecasts calling forwarmer weather. The February contract finished 4.4-cents lower at$1.931.

Some traders were surprised by the market’s ability to look pastthe cash market events of the day, which included prices rocketing20 cents higher at some points. However, a New York broker notedthat the spike in cash prices is a short phenomenon and thereforeunlikely to have any effect on February deliveries or prices.

Looking ahead, a New Jersey analyst remains bearish onfundamentals, but says he is becoming increasingly bullish ontechnical factors. “Funds are short 7.5% of total open interest.From that point they could either get a little bit shorter or theycould look to cover. My guess is that they will cover because theywill want to try the long side if the 40-day moving average dropsbelow February.” The 40-day moving average for February iscurrently at $2.105 and dropping by more than a penny each day.

But the analyst admitted the fundamental picture is still firmlybearish as evidenced by the market’s inability to spiral higher inthe face of the coldest weather in more than a year. “That justshows you how heavy a burden the current storage overhang is,” hecontinued.

And although the 158 Bcf withdrawal was largely in line withmarket expectations and larger than the 131 Bcf pull seen a yearago, bears were quick to claim it as a victory last night when theAmerican Gas Association released its storage report. Sellingprodded the market 5 cents lower in the Wednesday evening Accesstrading session. Storage is now 81% full which is 606 Bcf more thanlast year and 622 Bcf higher than the previous 3-year average.

©Copyright 1998 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.