After being called significantly lower in overnight Access trading, April natural gas futures appeared ready to probe support lines, reaching a low on Tuesday of $6.55 in morning trading. However, the prompt month spent the rest of the session pulling itself back up to settle at $6.68, down only 5 cents on the day.

The cold weather situation in the Northeast remains a key factor to prices, with some market watchers predicting that natural gas bulls may be in the driver’s seat for the remainder of the week. Not only was there a snowstorm sliding through key energy markets of the Midwest and Northeast, but forecasts of the National Weather Service show healthy departures from normal levels of heating degree day (HDD) tallies for the larger gas consuming areas of the U.S.

The HDD forecasts may bring current plump natural gas inventories closer to historical levels. For the week ending March 5, the NWS anticipates greater than normal HDD for both the Northeast states of New York, New Jersey, and Pennsylvania and the East North Central states of Wisconsin, Illinois, Indiana, Michigan and Ohio. The Northeast is forecast to receive 255 HDD, 37 above normal, and the East North Central 242, 12 above normal for this time of year.

If the early March trend of HDD holds up, it could do much to reverse the course of what up until now has been a relatively mild winter for the major energy-consuming markets. The accumulation of 255 HDD for the first five days of March would put the Mid-Atlantic on target to receive well above its historical March level of 827 HDD and the East North Central tally of 242 for the week is likely to start the region on track to go well beyond its normal March of 864 HDD. The HDD tallies are made relative to the average over the 1971 to 2000 period.

Longer-term traders advise a mix of patience and close monitoring of the entire energy complex. “The (natural gas) market only broke out of its trading range last week, so it’s not as though the rise in natural gas is old news,” said a trader with Coquest, in Dallas. He suggested that the best strategy would be to have patience and buy the dips. “The market is following heating oil and before the breakout of last week, we saw the same natural gas futures prices every day from the beginning of the year to Feb. 22. If you see the same price every day, you know the market isn’t going anywhere. Either up or down,” he said. In his opinion, there was nothing to get excited about trading natural gas until prices at least exceeded the previous day’s high. “That’s what happened last week,” he said.

The April natural gas futures traded in a broad range from its Jan. 3 low of $5.71 to a Jan. 18 high of $6.61. It did not break out of that range until Feb. 24 when it traded as high as $6.62. The April contract settled Monday at $6.730, up 15 cents.

Commenting on Tuesday’s session, IFR Energy Services analyst Tim Evans said he believes some profit-taking emerged during the session. “Natural gas futures have eased back from their highs on light profit taking as traders become more cautious ahead of Thursday’s DOE storage report.”

Evans noted that April held minor support at $6.55 and that there could be more buying through the $6.40 low from Friday if it were to attempt to trend lower now. On the upside, the analyst added that Tuesday’s pullback set the $6.80 high from Monday in place as minor resistance, with further selling through April’s $6.84 high of Dec. 17.

“A further tranche of buy stops over that mark could drive prices toward the psychological resistance at $7.00 and the Nov. 24 high at $7.25 as longer-term targets,” he said. “With further work at the top of its recent range, April has become more overbought technically, with a daily stochastic reading of 89%. This suggests it should have to work harder for its gains now or may need to consolidate what it has done so far before it presses higher. So far there is no bearish divergence to warn of an impending top.”

Looking towards the Energy Information Administration’s Thursday morning storage report for the week ended Feb. 25, Evans said he anticipates a 100-120 Bcf withdrawal, which would be on par with the 109 Bcf five-year average figure and last year’s 115 Bcf pull for the week.

“While that would be a neutral outcome, it would also leave the 356 Bcf year-on-five-year average surplus from the week before in place, still overhanging the market,” Evans said. “The current and forecast cold might succeed in making some inroads on the degree of excess inventory here, but we see the recent gains as quite vulnerable to any warming trend, or simply the end of the withdrawal season.”

Citigroup’s Kyle Cooper is looking for a draw of between 111 Bcf and 121 Bcf for the week ended Feb. 25.

Current working gas inventories as reported by the EIA stand at 1,720 Bcf, well above the 1,314 Bcf at this time last year and the five-year average of 1,364 Bcf.

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