Natural gas futures bulls received some unexpected support on Thursday morning after the Energy Information Administration (EIA) reported that a larger-than-expected 112 Bcf was withdrawn from underground storage for the week ending March 6. With the bullish storage draw and a significant burst of supportive strength coming from the crude futures arena, April natural gas futures broke back above $4 in afternoon trading before closing the day’s regular session at $3.995, up 19.7 cents from Wednesday’s finish.

After falling for a number of sessions, April crude futures recorded a surprising rebound on Thursday. The contract gained $4.70 to close at $47.03/bbl, perhaps lending some uplift to the neighboring natural gas futures market.

Just prior to the 10:30 a.m. EDT release of the storage report, the April contract was trading at $3.770. In the minutes that immediately followed, the prompt-month contract jumped to trade as high as $3.950. Futures spiked to a high of $4.040 just after 2 p.m. EDT before inching lower to close.

Citi Futures Perspective analyst Tim Evans labeled the draw “bullish,” noting that many industry estimates were well below. “The 112 Bcf in net withdrawals from storage was well over the consensus expectation…While a bullish surprise, we do note that it was only marginally over our own estimate, so we don’t think this necessarily represents an early indication of declining production,” he said. “It may be that estimates were just too bearish, influenced by the price action.”

The 112 Bcf draw was slightly larger than most industry estimates, which seemed to hover around the 100 Bcf mark. A Reuters survey of 26 industry players produced a withdrawal range of 76-110 Bcf with an average expectation of 98 Bcf. Evergreen, CO-based Bentek Energy said its flow model indicated a withdrawal of 101 Bcf. The actual withdrawal was very similar to last year’s 113 Bcf draw and somewhat larger than the five-year average pull of 91 Bcf.

Despite the bullish draw, supplies are still plentiful for this time of year. According to EIA estimates, working gas in storage stood at 1,681 Bcf as of March 6. Stocks are 271 Bcf higher than last year at this time and 197 Bcf above the five-year average of 1,484 Bcf. The East region withdrew 90 Bcf while the Producing and West regions removed 18 Bcf and 4 Bcf, respectively.

At present producers are scrambling to lay down rigs and are setting the stage for lower production down the road. The recession is doing a good job of curtailing industrial demand and at some point the two shall meet and some kind of supply-demand equilibrium should be met. The question is when.

Kyle Cooper of IAF Advisors in Houston sees that point later in the year. “We’ll just have to see how fast demand recovers and how fast production falls. I think it’s a few months down the road, six to nine months,” he said. He added that he thought the market is in a position to become less bearish “but right now the market is so incredibly bearish that a little less bearishness isn’t enough [to advance prices]. Conditions need to go to bullish, and I don’t see that for some time.”

Talking about the downside potential for prices, one Washington, DC-based broker said even though current prices are at almost six-and-a-half-year lows, even lower values “are not out of the question” here. “Every producer is out there screaming for the government to adopt the T. Boone Pickens plan because of its dedication to natural gas,” he said. “The administration’s response is that they are not giving credits for drilling to anybody.

“If we have a resurgence in the general economy, that will help to rebound prices as industrial companies start ramping up operations, but until the economy recovers, I think even lower price levels are still game from here.”

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