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Expected 172 Bcf Withdrawal Leaves Futures at the $9 'Crossroads'

Natural gas futures traders on Thursday once again tested resistance up at $9.050 and once again found it a little too rich for their liking as the March contract went on to record a low of $8.890 before closing out the day at $8.891, down 7.4 cents from Wednesday's close.

With the ever-changing weather picture and erratic price movement of the last three weeks keeping traders' heads on swivels, the natural gas industry could take solace in Thursday morning's natural gas storage report of a 172 Bcf withdrawal, which was right in line with expectations. As a result, natural gas futures on Thursday morning were unfazed.

The March contract, which was trading at $8.940 when the Energy Information Administration (EIA) data for the week ended Feb. 15 was released at 10:30 a.m. EST, edged higher in the minutes immediately following the report and topped out at $9.050 by noon. The $9.050 price level, which was the previous high from Nov. 30, 2006, is seen as a pivotal number for natural gas futures.

"The storage withdrawal report was right in line and the market did not move much," said Tom Saal of Commercial Brokerage Corp. in Miami. "There is not a whole lot going on out there, so we will have to see whether this resistance just above $9 holds up or whether the selling will come back in. We are really at a crossroads here."

With the market already expecting the 172 Bcf pull, traders and analysts instead analyzed the number against historical comparisons. "The withdrawal was supportive relative to the 161 Bcf five-year average, trimming the year-on-five-year average storage surplus slightly, but it was no great surprise," said Tim Evans, an analyst with Citigroup in New York. "Trade may pick up in the wake of the report, but it will be more due to the removal of risk associated with the data rather than due to traders revising their market view off the number."

Going into the report, industry estimates from various sources were abnormally close together, with most of them looking for a withdrawal of 174 Bcf or 175 Bcf. Saal was eyeing a 175 Bcf withdrawal, while a Reuters survey of 20 industry players produced a withdrawal range of 158 Bcf to 184 Bcf with an average expectation of a 174 Bcf drop. Golden, CO-based Bentek Energy said its flow model also indicated a withdrawal of 174 Bcf. The actual 172 Bcf pull came in well below last year's date-adjusted 228 Bcf draw for the week.

As of Feb. 15, working gas in storage stood at 1,770 Bcf, according to EIA estimates. Stocks are 127 Bcf less than last year at this time and 97 Bcf above the five-year average of 1,673 Bcf. The East region withdrew 120 Bcf for the week while the Producing and West regions removed 37 Bcf and 15 Bcf, respectively.

Heating degree day (HDD) data showed that stout heating requirements may not only be a factor in Thursday's expected triple-digit withdrawal figure but also may portend lighter pulls in next week's report. For the week ended Feb. 16, the National Weather Service reported above-normal HDD accumulations. New England endured 276 HDD, or 6 more than normal, New York, New Jersey and Pennsylvania had 268 HDD, or 18 more than average, and the Midwest states of Ohio, Indiana, Michigan, Illinois and Wisconsin shivered under 339 HDD, or 69 more than normal.

This week's figures look more benign. For the week ended Feb. 23 New England is expected to experience 241 HDD, or 16 fewer than normal, the Mid-Atlantic is forecast at 238 HDD, or normal, and the Midwest states are predicted to endure 282 HDD, or 27 more than normal.

Traders are divided on market direction. "I don't think its over with yet. There is still more room to the upside. I think we can move above $9 and see what we can test up there," said a New York floor trader.

Phil Flynn of Alaron, however, reports that he was stopped out on his short futures position at $9.03.

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