April natural gas futures drifted lower Wednesday in uninspired activity as traders monitored what seemed to be an ongoing struggle for the April contract to settle above $4.

For the moment, near-term price activity seems to be a function of larger traders adjusting positions rather than any response to fundamental factors. At the close April fell three-tenths of a cent to $3.938 and May eased two-tenths of a cent to $4.010. April crude oil gained 80 cents to $97.98/bbl. Gold rose $4 to $1,398/oz., but the Dow Jones Industrial Average plunged 242 points to 11,613 on concerns of further deterioration in the Japan nuclear situation.

In the early going April futures briefly traded above $4, but observers ascribed that to "profit taking" by traders covering existing short positions."We are still staying under $4," said a New York floor trader.

The trader seemed to discount any idea that Thursday's inventory data might cause a dramatic shift in market direction. "We are just not ready to get over $4 and I don't know of anything the [consensus inventory] number can do to get us over it."

"A lot of traders are watching crude oil, but $5 swings around $100 don't seem to mean much anymore either. It is being watched, though. I think if there is a meaningful settlement over $4, holding $4.01, the market can get to $4.12 to $4.13 on more profit-taking and traders taking some money off the table, but I think it would fail from there and trade back down to $4. At lower levels, everyone is comfortable buying on the $3.80 pivot point. That number has held a number of times," the trader said.

"If the big players, however, can get it below $3.80, I think they are ready to push it still lower. The gains of Monday and Tuesday were just lightening up of positions, and large traders are now in a position to push it still lower," he said.

Thursday's Energy Information Administration inventory report is expected to show a greater withdrawal from storage than last year, but less than the five-year average. Last year at this time 25 Bcf was withdrawn from inventories and the five-year average decline is 58 Bcf. Citi Futures Perspective analyst Tim Evans forecasts a 53 Bcf withdrawal, and both Kyle Cooper of IAF Advisors in Houston and Jim Ritterbusch of Ritterbusch and Associates are looking for a pull of 42 Bcf.

The estimates correlate well with recent heating requirements. The National Weather Service reports that accumulated heating degree days (HDD) for populous eastern and Midwest energy markets fell below normal. For the week ended Feb. 12, New England had 188 HDD, or 34 fewer that normal; and New York, New Jersey and Pennsylvania tallied 178 HDD, or 25 fewer than normal. The Midwest from Ohio to Wisconsin shivered under 211 HDD, or two fewer than normal.

Analysts noted in Tuesday's early trading that natural gas fell with everything else. "The natural gas futures started the day Tuesday with a downside test as heavy selling across a wide range of commodities in the 'risk off' long liquidation category spilled over into natural gas trading as well," said Tim Evans, an analyst with Citi Futures Perspective of New York. "The market that has refused to correlate with petroleum prices over the past two years or more showed that it's still inclined to go its own way, bobbing back to the upside again. To some extent this was a case of 'what can't go down, has to go up,' that suggests that natural gas has already become about as cheap as it is likely to become."

Analysts looking at more technical parameters seem to be coming to a similar conclusion. Walter Zimmerman, vice president at United-ICAP, studies sentiment figures as well as data on wave counts and retracements and said in a weekly note to clients that "sentiment numbers...strongly suggest natgas is poised for a short-covering rally. In wave count terms a decisive close above the $4.000 mark would set up a minimum target to the $4.450-4.630 area. The sentiment history...strongly suggests that being short natgas will now be a great way to lose money for the next few weeks."

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