April natural gas futures fell hard in active trading Thursday. Traders responded to data showing a weakening economy and a natural gas storage report that fell in line with expectations but below historical averages. Additionally, quantitative traders pushed prices lower.
The Energy Information Administration (EIA) reported a withdrawal from inventory of 102 Bcf, about in line with market expectations in the 100+ Bcf range but below historical averages.
By itself the decline might seem ordinary, but additional unfavorable economic data helped push prices to the low end of the day's range. April futures fell 25.2 cents to $4.088 and May lost 24.3 cents to $4.176. April crude oil fell $1.77 to $43.61/bbl, and the Dow Jones Industrial Average retreated 281 points to 6,594.
Short-term traders see additional selling pressure. "It's going to be 60 degrees in the Northeast and the fundamentals are definitely negative," said a New York floor trader. He added that the initial rise which took April futures up to $4.366 in electronic Globex trading was due to "weak shorts getting flushed out. The black-box algorithmic traders are definitely playing the market from the short side."
Last year during the corresponding period 139 Bcf was withdrawn from gas storage, and the five-year average stands at 121 Bcf. Inventories fell 83 Bcf in the East Consuming Region to 793 Bcf, and in the West Consuming Region stocks dropped 4 Bcf to 292 Bcf. The Producing Region saw inventories decline 15 Bcf to 708 Bcf.
Economic data was not encouraging. The Labor Department's 8:30 a.m. EST report Thursday on initial jobless claims for the week ended Feb. 28 came in at 639,000, below the 650,000 the market was expecting and lower than December's 667,000, which was the highest level in 26 years. The figure demonstrated ongoing economic weakness; one year ago initial jobless claims stood at about 350,000. The 10 a.m. release of January factory orders by the Commerce Department showed a decline of 1.9% from December. Expectations were for a decline of 3.5%, and although the figure was a slight improvement over December's 3.9% drop, it still was indicative of a faltering economy.
Analysts see the market under continued pressure from a weak economy. "By and large, this market will continue to have difficulty shaking off the effects of a continued bearish macro environment in which industrial demand deterioration is apt to exceed most expectations," said Jim Ritterbusch of Ritterbusch and Associates.
Ritterbusch is solidly in the bear camp. "We still view this market as susceptible to bearish spillover from the oil and equity markets. We are suggesting holding any short April positions established within the $4.20-4.30 zone and we would maintain stop protection at the $4.42 level. We are not ruling out reestablishment of a $3 handle by the end of Friday's's trade," he said in an afternoon note to clients.
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