February natural gas posted its fifth consecutive decline for the week and posted a new 28-month low Friday as traders noted greater confidence in longer-term weather models showing a strong warming trend toward the end of the month. At the close February had dropped 2.7 cents to $2.670 and March had fallen 2.4 cents to $2.713. February crude oil retreated 40 cents to $98.70/bbl.

“What’s happening is that the funds are leaning on the market and people are leaning away from buying it,” said Tom Saal, senior vice president at INTL Hencorp Futures in Miami. He added that the long-term trend line, which is currently positioned about $2.61, would likely be broken if producers came in and sold, almost in a panic mode. “You would need producer selling in addition to the fund selling.

“How much more bearish news can you get? You’ve got no winter, plenty of shale gas, and the economy is in the dumpster. The question for the market is where is the next dollar? I would say it is to the upside. Are you going from $2.60 to $1.60? At these lower levels, the market is starting to compress.”

Saal is a student of Market Profile, a trading methodology pioneered by legendary grain trader Peter Steidlmayer, which has been adapted to natural gas, crude oil and other commodities. Currently the Market Profile of the February contract is in rare territory.

Saal has compiled a monthly Market Profile for February that has an initial balance of $2.935-3.120. The initial balance is important because typically the market breaks out of the initial balance (higher or lower) to achieve 50% or 100% target levels. January has been unique, for the market is on the verge of achieving a 200% breakout (lower) at $2.565 after already having reached the 100% breakout at $2.750.

“This is very unusual. It’s a total capitulation,” said Saal. On a more positive note, however, he noted that his Cap Flow Model, an algorithmic use of Market Profile, “is giving us a buy signal. It’s the first one in a long time. The batting average in natural gas has been pretty good.”

Cap Flow is a subset of the broader Market Profile methodology and Saal suggests prices could move higher off the buy signal. Cap Flow attempts to categorize market activity in both a vertical (price) dimension and horizontal (time) dimension. By analyzing the relative components of vertical and horizontal market activity, Cap Flow can be used to forecast market direction, adherents contend.

Bulls got some positive fundamental news in the form of a decreasing gas rig count. Oilfield services firm Baker Hughes Inc. reported that for the week ended Jan. 13 active gas-directed rigs fell a whopping 20 to 791, well off the 902 drilling rig count a year ago. Horizontal wells, the ones associated with plays such as the Bakken, Haynesville and Marcellus shales, rose by one to 1,161, far ahead of the 967 in operation a year earlier.

Analysts see great difficulty in trying determine when the pervasive price slide might end. “This market continues to search for a bid and is finding negligible support. Fundamentally, the weather factor remains heavily skewed in a bearish direction and is continuing to associate with expectations for several more sharply downsized weekly supply withdrawals,” Jim Ritterbusch of Ritterbusch and Associates said in a morning report to clients.

Ritterbusch doesn’t see technical support for another 30 cents, and calculates there is little in the way “of significant chart support until about the September 2009 lows of roughly $2.40, [which] is discouraging buying from chart-related traders despite the fact that this market is currently much oversold based on most technical indicators. With the short-term demand factor offering negligible encouragement to a bullish case and with supply-side developments still in a dynamic phase of surplus expansion, the process of placing a bottom in this market is severely challenged.”

Weather models continue to show above- and much-above-normal temperatures in the 11- to 15-day period. MDA Information Systems in its forecast shows above-normal temperatures throughout the entire country with the only exception being the Pacific Northwest, which is anticipated to be normal. “An extreme warm pattern is becoming all but certain in this time frame, with nearly all guidance in favor of this outcome,” the forecaster said in its morning report Friday.

“The pattern will be dominated by the plus-EPO [Eastern Pacific Oscillation] signal, which puts a trough in the Gulf of Alaska and downstream ridge over the eastern half of North America. The result is a broad coverage of much-above-normal temperatures spanning the Ccentral to eastern U.S. Even the cold over Western Canada is likely to erode a great deal, as the core cold retreats towards Alaska. An unsupportive high-latitude pattern limits cold risks. Confidence continues to climb in this warm pattern.”

©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.