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Futures Rally Stamped Out Ahead of Expected Bearish Storage Draw

Front-month natural gas futures ended their four-day streak of higher finishes on Wednesday as expectations for a smallish storage draw in Thursday's report trumped positive economic news. April natural gas futures dropped 1.8 cents on the day to close at $4.329.

Even as the economy received unexpected supportive news Wednesday on durable goods orders and home sales for the month of February, bearish storage draw estimates for last week -- some calling for a single-digit Bcf pull -- appeared to be enough to halt natural gas futures gains, if only ever so slightly.

"The natural gas market may be starting to show some nerves over what the inventory data for last week might show, with our estimate for a 10 Bcf net withdrawal apparently in the ballpark with other forecasts," said Tim Evans, an analyst with Citi Futures Perspective in New York. "Since the five-year average withdrawal is 48 Bcf, a jump in the 228 Bcf year-on-five-year average surplus from March 13 is likely." Last year 43 Bcf was withdrawn for the similar week.

Evans said crude futures might also be playing a role. "The market may also be reacting to the downturn in petroleum prices," he said. "The weakening in prices also looks bearish relative to the updated weather forecasts, which are moderately cooler than the Tuesday afternoon edition."

On Wednesday May crude futures dropped $1.21 to close at $52.77/bbl.

Looking a little closer at Thursday morning's storage report for the week ended March 20, most industry observers are looking for a low double-digit Bcf withdrawal. A Reuters survey of 23 industry players produced a range of expectations from a 20 Bcf draw to a 2 Bcf build with an average expectation of a 9 Bcf draw. Evergreen, CO-based Bentek Energy said its flow model indicates a withdrawal of 13 Bcf, which would bring stocks 7.2% below the five-year high and 19.2% above the five-year average. The research and analysis firm said it believes the West and Producing regions will actually inject 7 Bcf and 5 Bcf respectively, while the East region withdraws 25 Bcf.

"Current weather models are indicating year-end storage levels to be around 1.6 Tcf, possibly a new record season-ending inventory level," Bentek said.

Economy watchers got some favorable news with the Wednesday release by the Commerce Department of data on February durable goods orders. Traders had been expecting a decline of 2.5%, which would have been an improvement over January's 4.5% slide. However, the actual figure came in at a surprising increase of 3.4%. The Commerce Department also released February new home sales data on Wednesday, which showed that sales rose to 337,000. Expectations were for 300,000, down from January's 322,000 and well below year-ago levels of about 600,000.

Observers concede that the present fundamentals are not supportive of natural gas prices, but those factors have already been priced into the market. Until weather factors can make their stamp on natural gas prices, the economy will take center stage. "The fundamentals are all bearish, but the only thing you can say is that if we make a general economic turn, natural gas is very competitively priced and is the clean answer," said a Washington, DC-based broker.

He added that "if the administration says we have these plans in place to stabilize the banks, and now we are going to turn to energy -- and by the way it has to be green -- natural gas catches all that demand."

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