Natural gas futures values knee-jerked higher Thursday morning following the news from the Energy Information Administration (EIA) that 135 Bcf was withdrawn from underground storage for the week ending Dec. 31. However, the sentiment was short-lived as February futures declined in the afternoon to finish the regular session at $4.434, down 3.9 cents from Wednesday's close.
Heading into the 10:30 a.m. EST report, February futures were trading at $4.470, but in the minutes that immediately followed, the prompt-month contract shot higher, reaching a high of $4.623 just after 11:30 a.m. EST before retreating in the afternoon.
Citi Futures Perspective analyst Tim Evans, who had been expecting a 145 Bcf draw, still considered the actual 135 Bcf draw to be supportive. "The storage withdrawal was more than the 128-133 Bcf newswire consensus expectations and well above the 80 Bcf five-year average, a constructive report," he said. "With plenty of cold ahead of the market we can also anticipate more above-average storage withdrawals in the weeks ahead. In our view this keeps the market on track for a move to the $5.00 area."
While the 135 Bcf draw was much larger than the five-year average, it fell well below last year's date-adjusted 153 Bcf draw for the week.
As of Dec. 31, working gas in storage stood at 3,097 Bcf, according to EIA estimates. Stocks are now 48 Bcf less than last year at this time and 190 Bcf above the five-year average of 2,907 Bcf. For the week, the frigid East Region led the withdrawal charge by removing 81 Bcf while the Producing and West regions removed 38 Bcf and 16 Bcf, respectively.
Top analysts are somewhat circumspect as to whether natural gas prices are likely to embark on any sustained bull move. There is still ample gas in storage, but Peter Beutel, president of Cameron Hanover, said, "Weather forecasts continue to predict colder and even much-colder-than-normal readings across large tracts of the continental United States over the next two weeks, during the very coldest part of the calendar year, which we call the 'heart of winter' (Dec. 15 through Jan. 31). With forecasts still embracing this period, and with the calendar seemingly getting the biggest bang for its buck (by being colder than normal when it really counts and accumulates the largest potential number of heating degree days), it is difficult to paint pictures as bearish as the ones we have become acquainted with these past two years."
Beutel sees the natural gas market as primed for additional buying as investors and longer-term players reassess a broader macroeconomic supply-demand environment. "Investors have ignored or shunned natural gas, even as almost every other commodity in the known universe has been rising as a benefit of an anticipated economic recovery. Recently, this group has been dipping its collective toe in the pool of interest in gas as a commodity asset. That could change the outlook for prices even more as we move through 2011," Beutel said.
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