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'Weather Trumps Storage' as Futures Prices Reach Record Levels

With frigid cold engulfing large portions of the country and winter storms sweeping east, natural gas futures traders pushed the January contract on Thursday to a high of $15.100, a new all-time high for any prompt month, unseating the old record of $14.750 that was set by the November 2005 futures contract on Oct. 5. January natural gas ended up settling at a new all-time prompt month high settle Thursday at $14.994, up an incredible $1.294 for the day.

The Energy Information Administration (EIA) reported Thursday morning that 59 Bcf was withdrawn from underground natural gas stores for the week ended Dec. 2. The number, which was well within the industry's expectations, was considerably smaller than the 76 Bcf pull that was recorded for the same week last year and the five-year average pull of 74 Bcf.

However, natural gas futures traders pushed the storage report aside Thursday morning and focused on arctic cold in the Rockies and the Midwest, in addition to a classic Nor'easter that was scheduled to sweep the Northeast Thursday night into Friday morning. Temperatures on Wednesday dropped in many regions of the country. West Yellowstone, MT, recorded a new record low of 45 degrees below zero.

After gapping higher from overnight Access trading to open at an even $14, January natural gas was trading at $14.100 just prior to the report's 10:30 a.m. EST release. Despite the neutral to bearish report, the prompt month continued to climb, reaching a morning high of $14.560, before bouncing between $14.400 and $14.680 for most of the afternoon. In the last half hour of the regular trading session, the prompt month took off, reaching the $15.100 high before the close.

"We really nailed that $15 mark I have been talking about for the last couple of weeks, but we got there a little quicker than I expected," said Nymex local Eric Bolling, one of the largest natural gas local traders. "Nonetheless, we find ourselves there. I guess the next target is $20."

Bolling said the market is all about weather right now, adding that his warnings over the past few weeks of the impact of significant cold on the market really came through. "It really is just a case of us getting some weather," he said. "Like I have been saying, until the March-April spread -- which represents the end of the winter strip and the beginning of the summer strip -- stops being bullish, neither will I. That spread continues to move out. It exploded on Thursday to settle at $3.400, up 72 cents on the day...and that's in a spread."

Looking at trading Friday, Bolling said there may be some profit taking following the big move. "In general, my feeling is that any sort of dip would become a buying opportunity," he said.

Speaking at NGI's Natural Gas Futures workshop at the New York Mercantile Exchange on Thursday afternoon, Sandy "Trot" Goldfarb, also one of the most active natural gas local traders, predicted the futures market's afternoon path (see related story).

"This market could go up on this move to between $15.020 and $15.280," he told attendees around noon EST Thursday. "A couple of the big players are caught way short and the market is going to find a way to [wring them out]." Trot added that the storage report was really a nonfactor in the move because "the weather trumped storage [Thursday]."

Rafferty Technical Research broker Steve Blair also said the storage report was "a nonevent" Thursday. "The real story here is the fact that this market is still very weather sensitive," he said midday on Thursday. "I think this run-up is purely weather. There is some real cold in the Midwest and Midcontinent, although we really don't have it out in New York yet. The temperatures here really aren't too out of the ordinary, but we are getting a snow storm [Thursday night]."

Immediately following the report's release, Blair noted that the close on Wednesday at $13.700 was a very important technical level. "Getting above that $13.700 was crucial for bulls," he said. "Our first major resistance level is around $14.500, but our next level doesn't kick in till $14.875. I think this is certainly a continuation of the technical move, but it is very weather driven."

Many called the report neutral with a slant towards bearish. While the range of withdrawal estimates ran from 49 Bcf to 70 Bcf, most industry experts had been looking for a mid-60s pull.

As of Dec. 2, working gas in storage was 3,166 Bcf, according to EIA estimates. Stocks are 58 Bcf less than last year at this time and 205 Bcf above the five-year average of 2,961 Bcf.

Significant cold in the East last week helped the region withdrawal 34 Bcf from underground stocks, while the West and Producing regions pulled 13 Bcf and 12 Bcf, respectively.

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