April natural gas futures continued lower Thursday following a brief jump as traders digested a report showing an 85 Bcf decline in natural gas inventories, in line with earlier estimates. By the end of the day April was down 4.0 cents to $3.778 and May had fallen 3.5 cents to $3.859. April crude oil fell 32 cents to $101.91/bbl.

For a moment after the release of Energy Information Administration (EIA) storage figures it looked as if bulls might get a reprieve from the protracted abuse they have been receiving during the week. Going into Thursday's trading April futures were already 18.8 cents less than last Friday's close.

The EIA reported that for the week ended Feb. 25 storage fell by 85 Bcf, about what traders were expecting, but holders of short positions didn't get the immediate collapse they were hoping for and prices rose to $3.870 right after the report's release.

Since the withdrawal figure didn't offer much in the way of surprises, traders surmised that sellers were "probably" looking at the report as not offering any fresh bearish stimulus and elected to cover outstanding short positions. "We've been in this channel from $3.75 to $4.55 forever, and if you look at prices at being at the bottom of the range and need to cover short positions, this is the place to do it," said a New York floor trader.

It didn't take the bears long to mobilize, however. "The [withdrawal] number was about 25 to 30 Bcf less than what we had last year and the five-year average and we did trade above Wednesday's settlement, but then the bottom dropped out of the market," a trader said.

"That just reassures the bears and it looks like the market wants to go to $3.50. I don't know what it's going to take to get a sustained rally, and it seems like we haven't had one in a year and a half. I expect this market to fall to $3.50 within the next three to four sessions," he said.

Longer term, analysts suggested that one of the major price drivers (lower), abundant inventory, is now no longer a factor. "The 85 Bcf in net withdrawals was about in line with at least the Dow Jones and Reuters survey expectations, although it was less than either the Bloomberg figure or our own 96 Bcf estimate," said Tim Evans of Citi Futures Perspective. "The draw was well below the 130 Bcf five-year average for the week. That said, the market was not unprepared for this report and so we would rate it as only a minor bearish disappointment. Storage of 1,745 Bcf was 9 Bcf less than a year ago and 15 Bcf under the five-year average, still not confirming the supply surplus that 'everyone knows' is pressing on prices."

Near-term weather forecasts, however, don't appear to be much help for the bulls. Commodity Weather Group of Bethesda, MD, said, "While a cold push is still expected to reach the Midwest, East and South in the second half of the six- to 10-day, the event is looking weaker and faster so that the impact is overall less than previously expected. This is a reasonable model trend given the prevailing La Nina pattern and lack of major cold-supportive blocking in the East. Instead, we continue to see signs of stronger cold air impacts for Western Canada and sometimes into the West and along the far North. After some early period variability, the 11- to 15-day shifts back to a typical La Nina pattern with warmer trends in the East and South."

The figures from the EIA were notable in that it was the first time in 10 years that an injection had been noted so early. Prior to the release of the data, industry consultant Bentek Energy in its report of March 1 had been expecting the first injection of natural gas in mid to late March. Bentek projected a build of 14 Bcf in the Producing region along with a draw in the East region of 64 Bcf and a withdrawal of 21 Bcf in the West region. The actual figures came out a build of 9 Bcf in the Producing region, a draw of 71 Bcf in the East and a pull of 23 Bcf in the West region.

"This is the first time in this decade that the region has injected in February. In the past, the first injection would materialize during the second or third week of March," the firm said. As far as the causes of the early injection, Bentek attributed it to "lower demand week on week due to mild weather...but U.S production growth is believed to be the biggest factor." Bentek is expecting a whopping "5.8% increase in domestic production year-on-year, despite freeze-offs last month."

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