After breaking below $4 for the second time in the last four regular trading sessions, January natural gas futures on Wednesday rebounded to close at $4.152, up 9.3 cents from Tuesday's finish.

Traders' attention now turns to Thursday's natural gas storage report for the week ending Dec. 17 and temperature forecasts heading into the Christmas holiday weekend.

"We really seem to be bouncing around and this market appears most comfortable lodged within $4 and $4.500," said Steve Blair, a broker with Rafferty Technical Research in New York. "We got up above $4.600 a couple of weeks ago and ended up failing. I think we saw a lot of fund selling up there. Now, some of the extreme cold from the forecast has disappeared a bit, so we've come back down a bit.

"It's interesting, we're getting some fairly decent pulls from natural gas storage, yet every time one of these reports comes out, the market seems to head lower," he added. "I think the whole 'buy the rumor, sell the fact' strategy is coming into play. In fact, that might be what Wednesday's 10-cent hike turns out to be. The industry is expecting to see a pretty big number, so we'll have to see if we get it, and if the market responds by dropping off once again. We could very easily get a draw of more than 180 Bcf, which would be bullish compared to historical figures, but because a lot of folks are expecting it, the market could inexplicably head lower."

Looking at natural gas storage withdrawal estimates for the week ending Dec. 17, it appears that most industry watchers are expecting a pull in the high 170s Bcf to mid 180s Bcf.

A Reuters survey of 25 industry players produced a 166-192 Bcf withdrawal range with an average expectation that storage became lighter by 179 Bcf. Bentek Energy is projecting a 183 Bcf withdrawal, which would bring the inventory level to 3,378 Bcf. The research firm expects a 120 Bcf draw in the East Region, with the Producing and West regions removing 54 Bcf and 9 Bcf, respectively.

"Last year the first three withdrawals of the season occurred in December and totaled 437 Bcf," Bentek said in its weekly storage outlook. "A 183 Bcf withdrawal this week would result in a net withdrawal of 436 Bcf for the same three weeks this year." The company noted that withdrawals from the East and Producing regions continue to climb as temperatures plunge below freezing in the East and as far south as Florida.

Citi Futures Perspective analyst Tim Evans is expecting a 175 Bcf draw, which would be just a bit larger than last year's date-adjusted 172 Bcf draw but much larger than the 136 Bcf five-year average pull.

Regardless of the number revealed Thursday, the National Weather Service (NWS) figures on heating requirements show that next week's reduction should not be quite as large as for the week ending Dec. 17.

For the week ended Dec. 18, New England tallied a hefty 260 heating degree days (HDD), or 17 more than normal, and New York, New Jersey and Pennsylvania accumulated 265 HDD, or 40 more than normal. The Midwest from Ohio to Wisconsin racked up a frosty 336 HDD, or 80 more than normal. Estimates for the week ending Dec. 25 show 255 HDD for New England, or three fewer than normal, 257 for the Mid-Atlantic, or 18 more than normal, and 282 HDD for the Midwest, or 11 more than normal.

Recent weather updates showed a significant warming in the latter portion of the six- to 10-day period. MDA EarthSat in its morning energy report said, "This period has trended considerably warmer through the central U.S. during the mid to late period. Since [Tuesday], the American models, which had been considerably colder, have trended towards the preferred European ensemble solution. With the guidance in better alignment and the European solutions also trending warmer, the forecast was adjusted accordingly. These forecast trends match with the expected transition towards a neutral AO [Arctic Oscillation] and positive EPO [Eastern Pacific Oscillation], both of which favor the overall warmer outcome. The West trended a bit colder during the last few days."

As any seasoned trader knows, forecasts come bearing risks, and MDA EarthSat cautions that "cold risks are mostly limited to the East at the onset and the West late. The greater risks to the period at this point are in the warmer direction over the Central U.S. during the mid-period."

With Tuesday's 17.8-cent market slide, technicians saw the bullish case in trouble. "With natgas giving back all of Monday's gains on Tuesday, the case for the bulls is once again in serious jeopardy," calculated Brian LaRose, an analyst with United-ICAP. He added that if the market cannot establish an "immediate bottom" at the $4.015 level Wednesday, then "a deeper correction of the $3.212-4.637 advance would be anticipated." LaRose points out that if the bearish case were to reassert itself, "consolidation between $2.653 and $4.637 is likely to last for several months."

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