February natural gas futures scored a second straight double-digit advance Thursday as traders reacted to a bullish inventory report and were forced to cover short positions.

The Energy Information Administration reported a withdrawal from storage of 243 Bcf for the week ended Jan. 14, greater than industry estimates in the 230 Bcf area. Short-term traders see the market advancing to $4.80, but longer-term analysts see a weather-driven advance possible to the $5 area. At settlement February rose 13.4 cents to $4.695 and March gained 11.6 cents to $4.692. February crude oil fell $2.00 to $88.86/bbl.

Short-term traders tended to view the day's rally as a reaction by holders of short futures contracts to exit positions. "I think the rise was a little more short-covering [than traders entering new long positions]. It looked like a number of traders were looking for the market to work a little lower," said a New York floor trader.

"The number came out and was obviously bullish and we rattled around between $4.58 and $4.65 for most of the day. We got a push toward the end of the day, but I think the market has room to move up to $4.75 to $4.80 by Friday. There are also a number of people looking to sell this market if it breaks above $4.75, and if the market moves another 10 cents higher, I think we will come off from there," he said.

Citi Futures Perspective analyst Tim Evans nearly nailed the withdrawal number. "The 243 Bcf in net withdrawals was near our own estimate [245 Bcf] but above the newswire survey estimates of 225-234 Bcf, so larger than expected. The net withdrawal was 110 Bcf above the 133 Bcf five-year average for the period, cutting the year-on-five-year storage surplus from 161 Bcf to 51 Bcf. With more cold weather still in the forecast for the eastern U.S. we continue to see potential for nearby natural gas futures to run to $5.00, plus or minus."

Currently the market is focused on weather and temperatures as being the primary price-drivers; however, analysts caution that such a one-dimensional perspective is too narrow. "The fact that this is still almost entirely a discussion about temperatures -- what we see coming, what they are right now, and what they might have done to storage levels a week ago -- highlights one egregious fact by its absence," said Peter Beutel, president of Cameron Hanover in a morning note to clients. "We are still not looking at the economy as an active remedy for the surplus of supply over demand that exists in general in this market. Prices are advancing primarily on relative improvements in storage levels. Once we get past this, selling is likely to be the default mode."

Students of supply-side economics got a chance to survey energy demand and the broader economic picture when the EIA released its report on petroleum inventories. Data shows that historically the five-year average for crude, gasoline and distillates is one of increasing inventories. However, Kyle Cooper of IAF Advisors was expecting a draw on crude oil of 500,000 bbl; gasoline inventories were anticipated to be flat, and distillates were seen down 500,000 bbl as well for the week ended Jan. 14. The actual figures came in at a build in crude oil of 2.6 million barrels, gasoline was higher by 4.4 million barrels, and distillate stocks rose by 1.0 million barrels. Petroleum markets sold off sharply.

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