Feeding off losses achieved during the largest single day dropin Nymex history Tuesday, natural gas prices continued loweryesterday as bear traders looked past supportive storage numbers tofocus on a warming trend expected later this week. The Februarycontract was dealt the most severe blow, tumbling 17.5 cents to$8.189. Losses were far less pronounced in the out-months asevidenced by the 12-month strip, which only slipped 5.1 cents to5.716.

According to the American Gas Association, 209 Bcf was pulledfrom the ground last week, leaving storage facilities with 1,729Bcf, or just 53% full. Although that draw was well within the rangeof market expectations, it far outpaced historical comparisons withlast year (133 Bcf) and the 5-year average (135 Bcf). Last week’swithdrawal was also conspicuous because it represented the firsttime in the seven-year history of AGA data that storage hasdecreased by more than 200 Bcf during the month of December.

However, despite the wealth of bullish empirical data, Februaryfutures actually sifted lower after the report was announcedyesterday. From its $8.53 peak reached moments before 2:00 p.m.(ET) the February contract tumbled more than 34 cents to its closeyesterday.

Forecasts for moderating temperatures were central, to thecontinuation lower, sources agreed. For one Houston-based trader,the warming trend also explained the backwardized price hierarchythat has spot cash trading premium to January swing-swaps and alsoto February futures. Henry Hub cash prices for today’s flowaveraged $9.65, $1.46 more than the February settle.

Also causing some concern for market watchers is the fact thatopen interest declined by less than 500 positions or just 1% duringTuesday’s 15% price erosion. One possible explanation, is thatlongs who entered the market in late October and early Novemberwhen the market was still trading sub-$5.00, are still in themoney, and thus hesitant to liquidate their positions. And anyincremental selling they are doing is being met almost one-for-oneby fresh short selling. The net effect of this situation, continuedthe trader, is that there could be some price stickiness to thedownside until the end of the month, when those holding longpositions are forced to either make delivery, or reverse theirhedge.

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