March futures added to Wednesday’s late gains on some technical short-covering but traded sideways most of the day Thursday, ending up 4.9 cents to $2.15 with a daily high of $2.16 and a low of $2.085. Several observers said if the contract can trade above $2.165 and build a little upward momentum, it might drive more shorts to cover and produce a small rally. But few are willing to bet the farm on that given the warm weather and enormous storage surplus.

“It looks like the market wants to stay above the index level and maybe test $2.165. The problem, I think, we’ve got right now of going anywhere is just that there’s not enough momentum in the market right now, no serious weather threat,” said Tom Saal of Pioneer Futures. “We’re seeing horizontal movement and we’ll probably go to a vertical at some point, but that could be up or down.”

The market still has to deal with this warm winter weather. We’re ending the twelfth week of warmer than normal temperatures this winter heating season. Last week marked the end of the warmest November-January period on record, according to the National Oceanic and Atmospheric Administration. Season to date, temperatures have averaged 18% warmer than normal and 25% warmer than last year. Furthermore, the latest six- to 10-day forecast from the National Weather Service is calling for more above normal temperatures for the entire eastern two-thirds of the nation.

“It’s incredible,” said Saal. “And then there’s the question about whether they pull the gas out of storage now or carry some of it into next season. My guess is the people who have to dump it are dumping it, and the people that can roll it are going to roll it. It looks like we are on a course for a record amount of inventory on April 1.” Saal said he’s looking for March to reach the high teens area, but where it goes from there is anyone’s guess.

Tim Evans of IFR Pegasus said he thinks March faces more selling if it reaches the $2.18-195 area, which capped the market during Sunday evening Access trade. If it is able to break above that level, it could follow through to $2.32, he said, before “resistance begins to stiffen ahead of the $2.41-2.444 highs for Jan. 17.” On the downside, if the market drops back below $2.08, it could lean back on the $2.02 low from Wednesday afternoon.

Futures traders are eagerly awaiting the Commodity Futures Trading Commission’s Commitment of Traders report, which will be released on Friday. The last report had a newsworthy decline in speculative short positions from a prior record high number of shorts. The large amount of speculative shorts normally would signal a warning to the market, and “make any bullish optimist gleeful,” consultants at Energy Security Analysis Inc. said in a report Thursday.

“If the market is threatened by some extremely bullish event, there is enough potential for prices to skyrocket and turn things around, at least for the short term,” says Kristin Dall, senior analyst at ESAI. The underlying market forces make it hard to muster much hope, however. “Given that spring is fast approaching, and that there are no real threats of bullish winter weather forecast for February or hope for significant withdrawal from storage, the short strategy looks to be a safe bet,” Dall said. ESAI consultants said that they believe the dumping of stored gas will hold prices down, and monthly cash averages will remain below $2.00 until June.

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