Traders followed the script of the last few days in pushing the February natural gas futures contract lower on its Wednesday expiration. The contract broke below the recent range’s $5.354 low to $5.223 before going off the board at $5.274, down 21.1 cents from Tuesday’s finish. The March contract, which now assumes front-month status, dropped 20.6 cents to close at $5.224.

“We broke through some interesting support today and some of the technical analysis says it could continue,” said Julio Sera, a broker with Hencorp Futures LC in Miami. “During the February contract’s reign, we had some serious cold early on massive storage withdrawals. However, I think now the expectation is that the worst of winter could be behind us, which is why February went off the board so weak. From the looks of things, we might not have enough demand for the remainder of winter to really eat away at storage. I think from here we are going to see some technical trading with an eye on any impending cold weather to come.”

Sera told NGI the charts are telling him that there might be some more downside room to explore. “The March contract got sold all of the way down to $5.180 on Wednesday, so we are seeing some pretty heavy downward pressure on this thing,” he said. “Looking at the technicals, the March contract broke well below the Bollinger Band and even settled below it. In theory, this means we’ll likely test even lower price levels. From a technical standpoint, we have not reached an ‘oversold condition,’ so the selling can continue.”

Citi Futures Perspective analyst Tim Evans said the bulls are concerned with the warming forecasts as well as Thursday’s natural gas storage report, where expectations are for a much smaller withdrawal than in recent weeks. However, he does see the potential for a rebound.

“Our expectation is that natural gas will have an opportunity to rebound once the actual storage data is known, provided the temperature outlook shifts back to some cooler readings,” Evans said. “Overall, natural gas remains very much a weather-driven market, and without a stable temperature pattern, prices are more likely to chop than to trend.”

Heading into Thursday’s storage report from the Energy Information Administration (EIA), industry withdrawal estimates are all over the map. The one thing it appears everyone agrees on is that the withdrawal will be significantly smaller than the 200 Bcf-plus draws of the prior two weeks. Evans said he is expecting a withdrawal of 135 Bcf for the week ending Jan. 22, while Bentek Energy is projecting a withdrawal of 79 Bcf for the week, which would bring inventory to 2,528 Bcf. The research firm expects a 62 Bcf draw in the East Region, a 16 Bcf draw in the West Region and a 1 Bcf draw in the Producing Region.

Bentek noted that a withdrawal of 1 Bcf in the Producing Region is 49 Bcf below the five-year average withdrawal. Stocks in the Producing Region would move to 5.8% above the five-year average after falling below the five-year average last week for the first time since November 2008.

The number revealed Thursday morning at 10:30 a.m. EST will be compared to last year’s 185 Bcf pull and the five-year average pull of 179 Bcf.

While next week is starting to show signs of warmth in nationwide forecasts, traders will have to deal with the more immediate impact of a wintry blast expected to encompass the East and Midwest. “The core of the bitter cold Wednesday will reside over the nation’s northern midsection. Temperatures will be held to the single digits and teens from northeastern Montana to Iowa and the Upper Peninsula of Michigan. The harsh cold will encompass more of the Midwest Thursday, then the Northeast on Friday,” said AccuWeather.com meteorologist Krystina Pydynowski. She added that high temperatures Friday will be held to the 20s in Boston, New York City and Philadelphia, yet these cities started the week with highs in the 50s and 60s.

Market bulls who were thinking that the last two weeks of mega-storage draws had changed the supply-demand landscape sufficiently to expect steady if not higher prices were somewhat chagrined to note that weather was still the near-term price driver. “Natural gas prices were down almost 24 cents/MMBtu in a clear show that temperatures are still the most important factors in this market. We honestly felt (and continue to believe) that last week’s EIA underground storage report had been a ‘game-changer,’ and that prices were probably half a dollar to a dollar undervalued in light of the virtual disappearance of the hitherto ubiquitous surpluses. But we were wrong, at least for now. It’s weather, weather, weather in this market right now,” said Peter Beutel, president of Cameron Hanover.

Others take a more seasonal approach in their market outlook. “With the energy markets keeling over and the stock market looking shaky, I don’t see a whole lot of room for confidence in the upside for natural gas. The other thing that makes us a little leery is that natural gas tends to get beaten up in January and February,” said Walter Zimmerman of United-ICAP.

Zimmerman noted that “it’s been many years that natural gas has gotten slammed from December into February as people figure out ‘I have enough [gas], my supplies are going to outlast the winter, and I am going to end up with more than I need.’ The recognition point has been delayed this year because of the cold winter, but we started the year with such a chronic excess of natural gas that unless an Ice Age introduces itself here in the next few weeks, the case for continued brutal cold is going to become more tenuous going forward.”

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