Erasing almost all of Tuesday’s gains, March natural gas futures dropped 12.6 cents to close at $7.241 in a quiet regular session Wednesday as traders decided to take it easy ahead of Thursday’s potentially record-breaking natural gas storage report for the week ended Feb. 9.

Temperature forecasts also continued to impact the market Wednesday. While the Midwest and a good portion of the East suffer through freezing temperatures and snow and ice storms, some near-term weather forecasts were calling for a turn to milder temperatures in the six-to-10-day and eight-to-14-day periods (see related story). The National Weather Service’s latest eight-to-14-day forecast covering Feb. 22-28 calls for a vast majority of the eastern half of the U.S. showing above normal temperatures while a majority of the western half experiences below normal temperatures.

“Looking at the most recent eight-to-14-day forecasts from some of the forecasters, there is no question that they are definitely more bearish,” said a Washington, DC-based broker. “You have to remember there is not all that much winter left to this thing. Moving into February we are getting more daylight and a lot of people — whether they are right or wrong — feel that the cold weather is done after the next couple of days and we are going to return to the 50-degree area. However, who knows if there will be another cold burst behind the forecasted warm-up.”

However, not all forecasts are looking for such a significant warm-up. MDA EarthSat in its most recent 11-to-15-day outlook has revised the forecast for the East to be slightly cooler. In its earlier forecast an area encompassing the Ohio Valley and points east was forecast at above normal, but currently that area has receded eastward to east of a line from West Virginia to the Florida panhandle.

Like a number of her colleagues in the energy industry, the broker said she sees a fairly wide band between support and resistance price levels for March natural gas. “We have pretty decent support down at Tuesday’s low of $7120, and below that, we have the psychological $7 area,” she said. “As for resistance, my first level is $7.670, followed by the $7.800 level.”

The broker noted that Thursday’s natural gas storage report for the week ended Feb. 9 will be of significant interest to the market (see related story), especially if it tops the all-time record withdrawal of 260 Bcf, which was set during the week that ended Jan. 17, 1997.

“Following the report Thursday, we could see a case of buy the rumor sell the fact given where we are pricewise and the fact that we are coming towards the end of winter,” the broker said. “We will have to see. It would probably have to be a real doozy of a withdrawal for us to see any sort of sustained reaction from the futures market.”

The broker said she is looking for a withdrawal between 243 and 253 Bcf, while a Reuters survey of 24 industry players produced an average estimate of a 252 Bcf pull. The ICAP storage options auction Wednesday, which now runs from 3:00-3:20 p.m. EST instead of 3:00-4:00 p.m. EST, revealed a 260 Bcf withdrawal expectation.

The current stranglehold Old Man Winter has on major eastern and Midwest energy markets is giving pause to those who argue that natural gas prices are headed sharply lower based on abundant supplies.

The season-ending supply surplus so anxiously awaited by the bears may not be quite what they expected. As of Feb. 2, working gas inventories stood at 2,347 Bcf, well above the five-year average, but nearly equal to 2006. Assuming the cold weather affecting the next two reports draws supplies down another 500 Bcf and the remaining six weeks of winter consume gas at the five-year average rate of 451 Bcf, only 1,396 Bcf or 13% more than the five-year average will be in place at the traditional end of the heating season March 31. Last year’s ending inventory was 1,696 Bcf.

From a fundamental standpoint, “burdensome” supplies may not get the bears where they want to go. In 2006 prices did eventually end up lower with the spot contract trading as low as $4.070 on Sept. 27 after an uneventful hurricane season.

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