March natural gas careened lower Thursday following the release of government inventory data showing usage somewhat below traders' expectations.

The Energy Information Administration (EIA) reported that for the week ended Jan. 28 working gas inventories fell 189 Bcf, within the general consensus of analyst expectations but far above the 165 Bcf average of the last five years and the 111 Bcf withdrawn during the year-ago period. March futures retreated 9.2 cents to $4.337 and April lost 8.8 cents to $4.357. March crude oil fell 32 cents to $90.54/bbl.

"The market was looking for an inventory number above 200 Bcf, so when it came out, the market fell out of bed," said a New York floor trader. He added that he expected the market to trade down to the $4.05 to $4.15 range, and "that's where I think we'll go next week. It's been quiet on the floor and a lot of traders are sitting on their hands watching the market bounce between $4.25 and $4.75."

If the market were to trade as low as $4.15, further downside is possible, according to the trader. "If we were to close below $4.15 and stay there, that might energize the shorts to push prices down to the $3.80 area."

Looking out toward the end of the heating season, analysts are expecting an ending inventory of about 1.5 Tcf. "Events are on track for an end-of-the-season 1.5 Tcf or a little lower, and it looks like that is priced into the market," said Kyle Cooper of IAF Advisors in Houston.

"Prices have been in this range of low $4 to upper $4s, and unless Mother Nature calms down a little bit, I think we are stuck in that range. Mother Nature has been very supportive of this market, and the fundamentals have prevented it from running away [higher]. As we end winter, I think there is an increasing likelihood that we do head lower."

The 189 Bcf withdrawal fit nicely with correlations to heating degree day (HDD) data. For the week ended Jan. 22, the National Weather Service (NWS) tallied 914 HDD for the broad population corridor extending from New England to Wisconsin, and 174 Bcf were withdrawn. For the week ended Jan. 29 NWS counted 939 HDD for the same region. For the week ending Feb. 5 NWS forecasts a total of 953 HDD, indicating an expected draw close to if not above 200 Bcf.

If market technicians are correct, any market responses to storage or other developments will have some high hurdles to clear. "Bulls have no case for a run to $5.500 unless they can decisively clear $4.802," said Brian LaRose of United-ICAP. "Bears have no case for a test of the $3.212 low unless they can decisively break $3.997. Should the bulls push natgas above resistance, we would still expect a substantial rally for 2011. On the flip side, if the bears can break support first, the case for any sustainable advance would be significantly postponed," he said in a Thursday morning note to clients.

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