Natural gas futures dipped then rallied Wednesday afternoon, as bulls and bears were caught in a tug-of-war on the news that 111 Bcf was pulled from underground storage facilities last week. With that, March completed its debut as prompt month at $2.08, up 1.3 cents for the session and 5 cents off its $2.03 low notched just 20 minutes prior at 2:10 p.m. EST. Estimated volume was average at 80,499.

According to the American Gas Association, 23 Bcf and 19 Bcf were withdrawn from the Producing Region and the Consuming Region West respectively, with the Consuming Region East accounting for the remaining 69 Bcf. The 111 Bcf net decrease sent the market mixed messages. While deemed bearish by some market watchers because it was less than last year’s comparable 128 Bcf drawdown, the withdrawal was also constructive in a sense because it was near the top end of market estimates calling for a 95-120 Bcf figure.

At 2,294 Bcf, storage now stands 1,053 Bcf above year ago levels, up slightly from last week’s surplus of 1,036 Bcf, but down from the peak surplus of 1,127 Bcf reached during the last week of December. Versus the five-year average, storage is currently at a 625 Bcf overhang. Last week the release of a 124 Bcf withdrawal spawned a selling push that demoted February futures to a new, life-of-contract low at $2.04 on Wednesday.

Looking ahead, Tim Evans of New York-based IFR Pegasus sees more pain in store for bulls. “As usual, a rising [year-on-year storage] surplus generally puts downward pressure on prices. Similar temperatures for the current week suggest a similar result for [next Wednesday’s report], so it won’t be until the following week at the earliest before we see room for the data to be more supportive. By that time, winter will be more than half over on a calendar basis, making it that much more difficult to goad the speculative shorts into covering, even in the presence of colder temperatures,” he wrote in his daily commentary.

Based on yesterday’s 111 Bcf withdrawal figure, which was somewhat larger than the 95-100 Bcf he had expected, Thomas Driscoll of Lehman Brothers estimates season-ending storage inventories will be 1,475 Bcf. This estimate is based on his findings that the relationship between heating degree days and storage withdrawals have a 94% coefficient of determination. “The weather for the season to date (since Sept. 30, 2001, based on heating degree days) has been 23% warmer than last year and 16.1% warmer than normal. We estimate that the weather has decreased heating demand by 521 Bcf versus normal and 811 Bcf versus a year ago….The data implies that if the weather were normal for the remainder of the heating season, storage levels would end the season at roughly 1,300-1,500 Bcf.”

In daily technicals, Jay Levine of Advest Inc. sees resistance at $2.10 and $2.25. “There is yet another short squeeze in the cards, but probably not until a pullback or two, as the major trend remains down.” Support, he continued, exists at $2.00 and $1.92.

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