March natural gas futures fell in moderate trading Wednesday as traders noted the market's continued inability to reposition itself above the psychologically important $4 resistance level. At the closing bell March futures were 5.5 cents lower at $3.921 and April had lost 6.9 cents to $3.961. March crude oil posted a gain of 67 cents to $84.99/bbl.
"The market has made a couple of attempts to get back over $4 and it just can't do it," said a New York floor trader. "I think there is only one way left for the market to go, and that is lower. I think we have seen the worst of the winter, and unless there is some extreme weather it is very unlikely this market gets back over $4. $3.50 to $3.60 is what traders are talking."
He added that funds and large traders were "protecting" the $4 level [by additional selling as needed]. "I don't think it is that hard to do once prices approach $4, and we are hearing a draw of 228 to 241 Bcf. If anything, the funds will be happy if they get a pop out of the number and will use it as a selling opportunity."
Estimates of Thursday's Energy Information Administration inventory report are spread across a wide range. A Reuters survey of 30 traders and analysts revealed an average of 233 Bcf with a range from 209 Bcf to 259 Bcf, and industry consultant Bentek Energy used its North American flow model to forecast a pull of 241 Bcf. Houston-based IAF Advisors expects a withdrawal of 239 Bcf. Last year 190 Bcf was taken from storage at this point in the heating season and the five-year average stands at 150 Bcf.
If the Bentek figure is correct, it would be only 2 Bcf shy of the season's record 243 Bcf pulled from storage on Jan. 14. Bentek is looking for Thursday's report to show a pull of 121 Bcf from the East Region, 94 Bcf from the Producing Region and 26 Bcf from the West Region. For 2010 the East Region saw a pull of 107 Bcf, the Producing Region 63 Bcf and the West Region 21 Bcf.
Citi Futures Perspective analyst Tim Evans expects a 215 Bcf withdrawal for Thursday's report followed by a weather-tempered 64 Bcf pull for the week ended Feb. 18, and a 67 Bcf reduction for the week ended Feb. 25.
In spite of today's setback other traders have a modestly bullish bias. They see the March contract's correction from a high of $4.496 early in the month to recent overnight lows of $3.86 as largely having run its course. Jim Ritterbusch of Ritterbusch and Associates said in a Tuesday afternoon note to clients, "We have shifted off of a bearish stance and into a bullish posture in which we favor purchases of the April contract on pullbacks to around the $3.95 area."
Tim Evans of Citi Futures Perspective said in his Tuesday commentary to enter the market by buying April futures on a stop order at $4.07 with a protective sell-stop at $3.87 once the position is initiated.
Analysts note a strong seasonal tendency for prices to advance at this time of year. "This is the time of the year when everyone is typically bearish on natgas, and every year there is a new list of reasons why it is safe to be short natgas into Q1," said Walter Zimmerman of United-ICAP. "Last year the reasons included shale gas and LNG [liquefied natural gas] cargoes. Last year natgas bottomed at $3.810 on April 1 then rallied to a $5.194 June 15 high. While winter-to-spring rallies are not as profitable or reliable as summer-to-fall rallies, they still have their history."
Zimmerman himself is looking for further price erosion. "We are well aware of how bearish everyone is on natgas. We ourselves are still targeting further downside," he said in a weekly analysis sent to clients. "However, we do not see a break below the $3.212 low as an imminent deal. Meanwhile, the sentiment just fell to only 21% bulls -- the lowest reading since the $3.212 low. If it gets that low, we suspect natgas will ricochet higher from the $3.480 area."
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