The expiringd March natural gas futures contract continued lower Thursday, but not before posting a new low. The Energy Information Administration (EIA) reported a withdrawal from inventories near what traders were expecting, but prices continued lower following the release of the data.

Oil prices took a breather from the multi-dollar moves of the last two days, yet tensions in the Middle East remain high. March natural gas fell 10.7 cents to $3.793 and April shed 6.4 cents to $3.872. April crude oil fell 82 cents to $97.28/bbl.

In spite of the fact the 81 Bcf pull was largely anticipated, analysts see a market still groping to find a price that has exhausted the will of the sellers. "The 81 Bcf net withdrawal from natural gas storage for last week was about in line with consensus expectations and basically only confirms what we already knew, that it was warmer than normal last week," said Tim Evans, analyst with Citi Futures Perspective in New York. It is Evans' view that "the market is still testing the downside, and so the market is not yet convinced that it's reached a level where gas can become no cheaper. We do still see another below-average storage injection for this week before more normal heating demand will translate into near-average withdrawals."

Industry consultant Bentek Energy predicted not only the total withdrawal of 81 Bcf, but also the exact withdrawals from each of the regions: the East at 57 Bcf, the West at 13 Bcf, and Consuming at 11 Bcf. The firm also noted that the withdrawal is the first double-digit pull of 2011 and is coming three weeks earlier than in the last two years. "A few more draws will occur in the weeks to follow, but most market players would agree that the withdrawal season is mostly over."

Market sentiment may be strongly bearish, but the bears had a lot to work with and were only able to glean a 7.5-cent decline in the March futures contract for the four trading days ending Feb. 24. Heating degree day (HDD) data from the National Weather Service (NWS) showed sharply lower heating requirements. For the five days ending Feb. 19 the New England-to-Wisconsin corridor tallied only 597 HDD, or a whopping 177 HDD fewer than normal. The accumulation of HDD for the week ending Feb. 26 and for the same region looks to be normal, according to NWS figures, at 733 HDD, or one more than normal. The question is: can the bears continue to pull off another weekly decline with heating requirements expected to be at normal levels?

In spite of a tenuous linkage between crude oil and natural gas prices, natural gas traders will no doubt be keeping an eye on the Middle East in the weeks to come. Events in Libya could have long-term implications to world oil markets, possibly affecting natural gas. According to Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm, "Foreign oil companies operating in Libya evacuated workers and some were reportedly suspending operations. Everything on contract out of Libya was declared to be in a state of force majeure -- or unable to comply with contractual terms."

At the center of the turmoil is Libya's unstable Col. Moammar Gadhafi. He "claimed that a 'small, sick' group of conspirators had given 'hallucination pills' to the country's young people, and they had been turned into pro-democracy 'drug addicts.'"

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