February natural gas futures slid lower from an elevated price level Thursday morning following the news from the Energy Information Administration (EIA) that 136 Bcf was removed from underground storage for the week ending Dec. 24, which was 48 Bcf less than the previous week's 184 Bcf draw. However, the prompt-month contract ended up closing at $4.338, up 5.1 cents from Wednesday and 20.5 cents higher than the previous week's finish.

Heading into the 10:30 a.m. EST report, February futures were trading at $4.342, but immediately following the fresh data the prompt-month contract dropped to $4.288. After recording the day's low of $4.235 at 11:30 a.m. EST, futures rallied to close the session.

Citi Futures Perspective analyst Tim Evans, who had been expecting a 143 Bcf draw, called the report "smaller than expected" but noted that the report does not signal a supply-demand balance shift.

"The 136 Bcf net withdrawal was toward the lower end of the range of expectations and should be a test of whether the bears can reassert control of the market after the recent move higher," said Evans. "The decline was still above the 130 Bcf draw from a year ago and the 118 Bcf five-year average and therefore still supportive from a fundamental perspective.

"The impact of the Christmas holiday on demand for natural gas may have been a bit more than expected, but we don't see the smaller decline as necessarily indicating any bearish shift in the background supply/demand balance. More above-average draws are also expected in the weeks ahead, which should direct prices to the upside, in our view."

While coming in well below the previous week's withdrawal, the 136 Bcf pull seemed to be pretty well inline with most industry expectations. Consultant Bentek Energy was on the record with a 133 Bcf draw expectation, while Houston-based IAF Advisors expected 140 Bcf to be pulled.

As of Dec. 24, working gas in storage stood at 3,232 Bcf, according to EIA estimates. The withdrawal expanded the deficit to last year to 62 Bcf and decreased the surplus over the five-year average to 246 Bcf. For the week, the frigid East Region removed 103 Bcf while the Producing and West regions declined by 21 Bcf and 12 Bcf, respectively.

On the release of the storage data, some traders note that selling opportunities have often presented themselves to those nimble enough to take advantage of volatile price swings. John Woods of McNamara Options in New York said the trading floor had been looking for a withdrawal of about 135 Bcf. "The last couple of reports have been good selling opportunities, and if prices rally, traders will smack it. It's going to be 50 degrees in New York City on Saturday, but the computer traders will have their programs ready, and somebody is going to get burned."

Near-term weather forecasts are converging on the likelihood of increased cold by the middle of January. MDA EarthSat in its 11- to 15-day outlook said in its morning energy report, "The cold shot that develops late in the six-10 day will be the focal point of this time frame. Guidance is coming into better agreement on the fairly strong cold shot resulting from increased blocking. Initially, this cold will impact areas from the Northwest to Northern Plains, but it should gradually work into the Midwest and South as well.

"At least during this period, the core of the coldest air should hold back from reaching the East, with a chance for another storm system to break up the chill. Confidence in the colder pattern is moderate to high, but timing and intensity remain in lower confidence."

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