April natural gas futures settled a dime lower Thursday as the market was forced to price in a withdrawal figure significantly lower than expectations. The Energy Information Administration (EIA) reported that for the week ended March 4, 71 Bcf had been withdrawn from inventories, way less than what the market was expecting. At the end of the day April futures fell 10.0 cents to $3.830 and May shed 9.4 cents to $3.892. April crude oil dropped $1.68 to $102.70/bbl.

"The 71 Bcf withdrawal was a surprise to me, but the market has been expecting a pretty negative number," said Jim Ritterbusch of Ritterbusch and Associates. Prior to the release of the figures expectations had been running in favor of a higher draw. A Reuters poll of 27 traders and analysts showed an expected average of 77 Bcf, and industry consultant Bentek Energy calculated an 81 Bcf withdrawal. Citi Futures Perspective analyst Tim Evans was anticipating an 84 Bcf withdrawal.

"The [EIA] number came out, which was a little lower than expected, and prices dipped, but I think there was some profit taking against those lows," said a New York floor trader. "I'm thinking that the only thing keeping the market from falling to $3.60 is the high price of crude oil. Not that we are directly moving with it, but I think traders are maintaining their positions at the $3.80 level.

"I think when the number came out there was some [short] money taken off the table, but the larger players are trying to keep a cap on the market and protect their short positions. I think if prices rise, they will defend their shorts. It looks like natural gas is poised to move lower unless crude oil makes a substantial rally."

Looking at the current market, Cynthia Kase of Kase and Co. Inc. said technical analysis, because it is "objective and unemotional," is important to incorporate into gas buying decisions. In a white paper released Thursday titled "Five Keys to Natural Gas Price Analysis," Kase noted that in "a market that can fluctuate 15 cents or more in a given day, the decision to buy gas today or tomorrow can mean big savings."

She added that the five keys -- geometric patterns, wave projections, retracements, candlestick patterns, and momentum -- all indicated that strong resistance in April futures was met at $3.96, "which probably will hold." On the downside, use of the technical tools "suggest the move down should extend to at least $3.64 soon."

Kase will be hosting a technicals preconference at GasMart in Chicago on May 10, where she will highlight how five simple technicals can make a sizable difference in a gas buyer's cost structure. For more information on GasMart, or to view Kase's complete white paper, visit gasmart.com.

Others see the market ready to stage an advance. "The 71 Bcf in net withdrawals for last week was at the bottom end of the range of expectations, a bearish outcome. The new total of 1,674 Bcf was 32 Bcf higher than a year ago and 21 Bcf above the five-year average,"said Evans. He contends that the small differentials to historical supply averages "still don't confirm the ongoing oversupply that was the rationale for the decline from late January, however. The data is short-term bearish, but we still see the market as undervalued relative to storage levels and anticipate an intermediate-term price recovery to $4.25 or more," he said in a note to clients.

Bentek was looking for a withdrawal of 81 Bcf; however it, did correctly forecast a build in the Producing Region, an unusual development for this time of year, and one which put inventories above the five-year record high.

"Storage inventories hit a new all-time record high last November, but cold weather forced large withdrawals in December and January, making inventories fall below such high levels on the week ended Feb. 11. Only three weeks later and after the earliest start of the injection season for the Producing Region, inventories again are setting a new five-year high. These high inventory levels are mostly attributable to production growth and storage capacity additions," Bentek said.

Bentek had calculated a draw in the East Region of 66 Bcf, a draw of 18 Bcf in the West Region and a build of 3 Bcf in the Producing Region. The actual figures came in at a draw in the East of 61 Bcf, a pull of 17 Bcf in the West, and a build of 7 Bcf in the Producing Region.

Technical analysts don't see the market falling much more than another 40 cents. According to Walter Zimmerman, vice president at United-ICAP, "The ideal support zone is the $3.570-3.475-3.460 area...The question in our minds is whether natgas can fall that low before the bears get frustrated and start to cover. The reason we doubt the ability of natgas to fall that low this week has to do with sentiment."

Zimmerman points to figures from MarketVane.net that show sentiment at extreme bearish levels. At present the bullish sentiment for the natural gas market stands at a minuscule 17%, and Zimmerman hints at a short-covering rally. "For over a year now it has been profitable to buy natgas below 20% bull[ish sentiment]."

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