While the report that 22 Bcf was withdrawn from storage for the week ended March 23 came in a little larger than most industry estimates, the number was still below historical withdrawals for the week, which allowed bears the opportunity to cut some of the last week's natural gas futures gains. May natural gas closed 6.3 cents lower Thursday at $7.609.

After trading at $7.625 just prior to the Energy Information Administration's (EIA) 10:30 a.m. EDT report, the May contract in its first regular session action dropped nearly a dime to $7.53 in the minutes that followed. The prompt month then rebounded, recording a high for the day of $7.700 before coming to a close.

"I think we are working off some short-term overbought conditions from the rally of the last few sessions," said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. "We kind of rallied up the first few days of the week and I am not surprised that we are going to go sideways to down for a little bit. Once we get past April Fools' Day, we'll start a new month off with all of the traders having new sets of bullets."

The broker noted that the storage situation definitely looks comfortable as the market leaves the withdrawal season after one more report. "We really haven't had many surprises recently, which is the way you expect things to go during the shoulder period," he said. "The next news on the horizon surrounds summer weather forecasts, more hurricane outlooks, nuclear power outages and drought conditions. These are the kinds of things that the market feeds off going into the summer."

Saal said he doesn't expect whole lot of directional activity in futures in the near term. "I see support near $7.800 to $7.850. On the downside, I have pretty major support at $7.370 to $7.400. Between those parameters I think the market is kind of meandering."

Other market experts noted that the storage level is not currently on the crowded radar of traders. "If my smartest client...is anticipating a flat [storage] number, if not small build, and EIA reports a 22 Bcf withdrawal, it goes to show...what do we all know?" asked Jay Levine, a broker with enerjay LLC. "Nevertheless this is very likely the last withdrawal of the season and since the markets have bigger fish to fry -- technically, psychologically, and geopolitically, I wouldn't necessarily take this report with more than a grain of salt, and continue to key off previously posted numbers." Levine sees support at $7.500, followed by $7.375, $7.075 and then $6.850. For resistance, the broker targets $7.675, $7.725, $7.850 and then $8.350.

Some market technicians wonder how much higher natural gas futures can go. "Wednesday [spot futures] rallied to a $7.728 [overnight] high then fell enough to create a potential doji star top-type pattern on the daily candlestick," said Walter Zimmerman of United Energy. In candlestick parlance, a doji star top is formed when the market has been rallying and gaps higher and trades to new recent highs such as the April and May natural gas futures contract did Wednesday. From the new highs the market stumbles and gives up a portion of the earlier gains closing near the open. May futures opened at $7.715, but settled at $7.672 in trading Wednesday.

Zimmerman noted that if the May contract couldn't hold on to Wednesday's gains, it may not have much more room to work higher."The bullish case for further upside is seriously damaged by a close below the $7.460 level as the 50% retracement of the most recent leg up from $7.194 to the $7.728 high," said Zimmerman.

Short-term traders see the market as dominated by recent geopolitical events. May crude gained another $1.95 in Thursday's trade to close at $66.03/bbl. "The Iran premium is definitely in the market, and that has forced traders to lift shorts earlier than they had thought," said a New York floor trader. He added that "if crude oil goes to $80 then there is no reason for natural gas to remain in the $7 range. I don't like to link crude and natural gas, but things could get nutty in the Middle East," he cautioned.

Some are talking even higher oil prices. In a MarketWatch report Gary Dorsch, editor of the Global Money Trends newsletter, said, "Crude oil could top $100 per barrel," if the British sailors are not released soon by Iran or if war breaks out.

Breaking down the storage report, a Reuters survey of 21 industry players was expecting storage supplies to drop by approximately 16 Bcf, while the ICAP storage options auction Wednesday afternoon revealed a consensus expectation of an 18 Bcf withdrawal. Golden, CO-based Bentek Energy's Flow Model indicated a withdrawal of 17 Bcf. "Unless unusual weather develops, this is expected to be the last withdrawal for the winter season," the data analysis firm said.

While the report revealed a larger withdrawal than most expected, the 22 Bcf pull still came in well below last year's 92 Bcf withdrawal and the five-year average pull of 50 Bcf. As of March 23, working gas in storage was 1,511 Bcf, according to EIA estimates. Stocks are 209 Bcf less than last year at this time and 267 Bcf above the five-year average of 1,244 Bcf. The East region, which experienced a little bit of a cold snap last week, withdrew a whopping 41 Bcf, while the Producing and West regions continued injections, putting 13 Bcf and 6 Bcf underground, respectively.

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