Taking its cue from the January contract’s negative expiration on Tuesday, February natural gas futures in their first regular session action as the front-month contract dropped 13.1 cents Wednesday to close at $5.709.

After the January contract put in a high of $6.035 early on Tuesday, futures values have been in a steady decline. The February contract recorded a high of $5.929 in Wednesday morning trade on holiday-thinned volume before spending the rest of the session scouting lower prices. Some market participants were quick to note that “serious business” wasn’t likely getting done between the Christmas and New Year’s holidays.

“I’m not so sure our run to $6 was anything more than a good top of a band to sell. Given the thin trading community that is around due to the holidays, I don’t think there is anyone out there putting on big directional bets based on the economy,” said a Washington, DC-based broker. “I think people are simply trying to make a little bit of money while they are sitting at their desks wondering how much longer they have to stay. I’ve gotten a lot of voice-mails while calling around the last few days. Serious business is not being done right now. The idea of selling the top of the band and buying at the bottom is as good as it gets.”

The broker said he doesn’t believe the $6 price level held any extra magical significance. “Natural gas at $6 was not really on my radar as an important pivotal price level, but I don’t think we’ll be going much higher. I would expect to see the prompt-month [contract] run out of steam here to the upside. Whether that is at $6 or a little bit higher, I’m not sure. I could see $6.40 being the upper end of the range. Once this weather gets fully digested, we’ll likely see the end of this advance for the medium term.”

Commenting on the reports that storage is being drained this winter much faster than normal, the broker was quick to note that storage gas is only one part of the equation. “Storage is only a balancer because the fact is most gas goes from the wellhead to the burnertip. Now in the winter, people have to remember that storage can be pulled down awfully quickly with cold temperatures. If we get five weeks of straight cold, we’ll have made more than a dent in storage supplies, but that’s why we have it.”

Looking at Thursday morning’s natural gas storage report for the week ending Dec. 25, Citi Futures Perspective analyst Tim Evans said he is expecting a 160 Bcf draw, while a Reuters survey of 22 industry players produced a draw expectation range of 134 Bcf to 171 Bcf with an average pull consensus of 150 Bcf. Bentek Energy projects a withdrawal of 140 Bcf this week, which would bring inventory levels to 3,260 Bcf. The research firm expects a 94 Bcf draw for the East Region, a 33 Bcf pull in the Producing Region and a 13 Bcf pull in the West Region.

The number revealed Thursday morning will be compared to last year’s date-adjusted 144 Bcf pull and the five-year average draw of 120 Bcf.

As if the last blast of cold weather was not enough for market bulls, forecasters call for yet another blizzard to paralyze the Northeast as 2010 gets under way. “This time, northern New England and the St. Lawrence Valley will bear the brunt of the storm that will not be quick to depart. All the ingredients needed for the storm to take shape will come together later New Year’s Day. Prior to that, the storm will deliver a bit of snow to the Northeast’s interior and a wintry mix east of the mountains,” said AccuWeather.com meteorologist Kristina Pydynowski.

She added that the storm should diminish later in the weekend but would likely not entirely depart the Northeast. “The result will be continued blustery and cold conditions into early next week. Blowing and drifting snow will keep causing problems for motorists where the storm leaves substantial snowfall.”

Analysts see Tuesday’s setback as part of a larger difficulty that the market has in making a definitive breach above the $6 area. “A more relevant number is $5.96,” said Walter Zimmerman of United Energy. He added that the market had run into problems at that level for more than two weeks, and with Tuesday’s decline bearish candlestick patterns were beginning to set up.

“The thing that worries me about natural gas is that there was so much hype over Exxon buying XTO that people felt they had to rush out and buy natural gas,” Zimmerman said. “Historically this is the most dangerous time to be buying natural gas because natural gas typically loses approximately 60% of its value from a Q4 peak to a Q1 low.”

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