The three-day run higher by the January futures contract came to an end Thursday as a soft inventory report caused traders to rethink their bullish posture.

The Energy Information Administration reported 121 Bcf was withdrawn from storage for the week ended Dec.14, well below expectations in the low 130 Bcf range. A Reuters poll suggested a 132 Bcf draw and a Dow Jones survey revealed an average expectation of 133 Bcf from 11 analysts queried. January natural gas futures fell 4.2 cents to $7.137, and February slipped 6.2 cents to $7.237.

Traders are having difficulty gauging market direction as the holidays have removed many key players and market makers from the arena, leaving short-term price direction in the hands of day traders and other shorter time frame participants. “I think the holidays have kept a number of market makers quiet. Not a whole lot of transactions have been going on, but the storage number has put a pause on bullish aspirations for the moment,” said a broker with a New York bank.

“It’s just one of these things where the natural gas market is stuck in a $7 to $7.20 funk, and that’s where the market is playing right now.” The trader added that future price direction higher or lower would depend on weather forecasts after the first of the year and also preliminary tropical storm assessments that come out in the first quarter. “Those two reports will give a good indication of how volatile this market is going to be or if its going to stay stagnant.”

Funky weather forecasts may be making it hard to get a grip on the near-term price outlook. Differing outlooks by government and private forecasters only add to the mix of market uncertainty. MDA EarthSat, in its release Thursday for January, shows above-normal temperatures confined to an area south of an arc extending from Maryland south and west to Central Texas. North of a line extending from central Wisconsin west to southern Idaho and north to central Washington is expected to see below normal temperatures. From New England to the Mid-Atlantic to California is forecast to see normal temperatures.

The National Weather Service (NWS) is much more generous in its treatment of above-average temperatures, albeit for a longer time frame. The longer-term weather forecast for the January-March period issued Thursday by the NWS may warm the hearts of bears. It shows above-normal temperatures across a vast section of the country south and east of a sinuous line stretching from southern New York westward to central Wyoming and bending sharply south to Southern California. The Pacific Northwest and northern tier of states is expected to have normal temperatures, and New England has equal chances of above- or below-normal temperatures. No section of the country is forecast to have below-normal temperatures.

“I think traders are pausing on the NWS long-term forecast; I think they are taking it with a grain of salt,” the broker said.

Market technicians see some of the bearish case dissipating. “We’ve been bearish, but some of the momentum is starting to come out of this market,” said a Washington, DC, broker-analyst. He added that some of the indicators his company watches, such as MACD (Moving Average Convergence Divergence), were starting to come together , indicating a sideways market.

“We have been thinking the market was going lower, and I would like to see it get up and go, but for the moment we are stuck with a $7 floor. Weather, or a lack thereof, will be necessary to punch it below $7, but everyone has been so bearish. The Barnett Shale play has come on stronger than expected and storage is full. Everything points lower, but if it doesn’t happen soon we may get a rise because of short covering,” the broker said.

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