With near-term weather forecasts being classified as anything but supportive, March natural gas futures on Wednesday continued to explore new lows in the downtrend. However, an afternoon round of buying sparked a rally that allowed the prompt-month contract to close at $4.214, up 1.1 cents from Tuesday’s close.

After recording a $4.191 low during Tuesday’s regular session, March futures dropped to a $4.101 low on Wednesday before rebounding in the last half hour of the regular session. With lackluster weather and not much new on the slumping economy, traders are looking to Thursday’s storage report for the week ended Feb. 13 for their next market direction cue.

Citi Futures Perspective analyst Tim Evans said the bulls don’t have much to hang their hats on at this point. “The natural gas market remains on the defensive as the temperature outlook continues to lack enough heating demand to make up for reduced industrial and electric power demand,” he said.

To prove his point, Evans pointed to the Frontier Weather six- to 10-day outlook for Feb. 23-27, which calls for above-normal temperatures from the Southwest and central Rockies to the Mississippi River, with normal readings for most of the West, North and East. Some cooler-than-normal temperatures are possible in the northern Plains. In the 11- to 15-day forecast covering Feb. 28-March 4, the forecaster said temperatures are expected to average cooler than normal in the Pacific Northwest and northern Plains, and above normal from the central Rockies to Texas and the Southeast. Normal readings are expected elsewhere.

“Tomorrow’s DOE storage report will feature a rather small net withdrawal of 60 Bcf or so, which may be getting priced in now, but the risk of a truly bullish number is remote and so there is little risk of an immediate upward reversal at the moment,” Evans said.

Looking a little more in depth into Thursday’s storage report from the Energy Information Administration, a Reuters survey of 22 industry players produced a range of withdrawal expectations from 40 Bcf to 87 Bcf with an average pull expectation of 57 Bcf.

A withdrawal of only 57 Bcf would be significantly bearish from a historical perspective. The number will be compared to last year’s 157 Bcf pull for the week and the 155 Bcf draw five-year average.

Near-month crude futures on Wednesday continued to offer aid to the bearish natural gas futures case. March crude dropped 31 cents on the day to close at $34.62/bbl.

Economic observers were disappointed at the 8:30 a.m. EST Wednesday release of January housing starts data. The Commerce Department reported that during January housing starts were a thin 466,000 units at a seasonally adjusted annual rate. The market had been expecting starts of 530,000 units, and December starts were 550,000 units. Housing starts have been on a long-term decline from January 2006 when starts reached an annual rate of more than 2 million units.

Analysts see the market better assessing the loss of industrial demand resulting from equity and oil market carnage as weather becomes less of a factor. “On the demand side, the recession induced slide in industrial off-take should become better defined as the weather factor is gradually pushed out of the demand equation during the coming weeks,” said Jim Ritterbusch of Ritterbusch and Associates.

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