March natural gas futures recorded a third straight day of gains Wednesday despite the fact that New York City was basking in 58-degree weather on the sixth day of February. However, they don’t call it the “futures” market for nothing. Temperatures later in February continued to look colder than first expected, helping to drive the prompt-month contract to a high of $8.070 before closing out at $7.994, up 5.2 cents from Tuesday’s close.

Over the past three sessions March futures have picked up 25.4 cents, which has deposited the contract up against the psychological support/resistance line of $8. While storage levels are healthy and the official end of winter is a little more than a month away, calls for February to be colder than first expected has rattled some traders. Others were focusing on the current spring-like temps in the Northeast.

“It’s 58 degrees in February and that is bullish,” quipped Tim Evans, an analyst with Citigroup. “If the natural gas market can’t find lower prices when it is this warm in New York during the month of February, it must be a bull market.

“Some of these eight- to 14-day outlooks that have suddenly turned cold in the northern regions of the country over the last few days are definitely behind some of this push higher in futures, but is it warranted?” Evans asked. “Is this cooling forecast really to be considered bullish? While it is now supposed to be colder than first expected and we are walking the price higher based on that idea, the heating degree day accumulations are certainly expected to be lower than a year ago…and even slightly lower than the five-year average. So while the forecasts are now less bearish than they were, that is not the same thing as calling them bullish.”

Addressing the Energy Information Administration’s natural gas storage report for the week ended Feb. 1, Evans said, “We might get a little bit of bullishness out of it and milk this weekend’s expected temperature drop, but what do the bulls do for an encore? For the week ended Feb. 8 the withdrawal could be down around 130 Bcf.”

Looking closer at Thursday morning’s report, no one this time around is expecting another withdrawal like the previous week’s 274 Bcf. A Reuters survey of 20 industry players produced an average expectation that 184 Bcf would be removed from storage for the week. Bentek Energy said its flow model indicates a 205 Bcf pull, which would bring stocks 15.2% below the five-year high (last year) and 2.8% above the five-year average. Bentek’s estimate included a 121 Bcf withdrawal from the East region, a 51 Bcf pull from the Producing region and a 33 Bcf draw from the West region.

The number revealed Thursday morning will be compared to last year’s 219 Bcf withdrawal and the five-year average pull of 177 Bcf.

Market technicians for the moment are biding their time, waiting for futures prices to establish the next trend either higher or lower. According to Walter Zimmerman of United Energy, the high posted by the March contract in Tuesday’s trading, $8.005, was not high enough ($8.012) to establish a bullish move, yet the low of $7.890 was above the $7.670 needed to begin a trend to the downside.

“Neither bulls nor bears got what they needed on Tuesday. Natgas congested in a very narrow zone at the upper end of Monday’s range. While not bearish it was also not a technical breakout to the upside,” he said. He added that a “close above $8.012 from here would greatly buttress the case for $10 gas in the spring.”

Other traders are willing to trade for lower prices. Phil Flynn of Alaron said he was stopped out at “approximately $7.98” on his short March natural gas futures position established earlier at $8.12. “Sell March natural gas at $8.12 with a stop at $8.20,” he said in a note to clients.

Weather bulls may want to take their gains and run. In its early morning forecast MDA EarthSat said the six- to 10-day period looks like it will offer cooler temperatures followed by a rapid warmup. “With the strong chill moving into the 3-5 day period, progression is making the composite [forecast] look warmer today. The coolest temperatures of the period in the East remain early in the period, with a fast return to above- and much-above-normal conditions late,” said Matt Rogers, meteorologist with MDA EarthSat.

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