After oscillating higher, then lower and carving out a quick 13-cent trading range in 20 minutes Thursday morning, January natural gas futures finished the day with a bang as traders priced in another in a string of bullish storage reports (91 Bcf withdrawal). January finished at $4.406, up 10.8 cents for the session and just four ticks below its daily high at $4.41.

Short-covering by local traders spawned by late fund and commercial buying was responsible for the price spike. However, traders believe those gains will be in jeopardy Friday as pre-weekend profit-taking could drop the prompt contract back into the $4.30s.

According to the Energy Information Administration, there was 2,956 Bcf of working gas in storage as of Nov. 29, which was down 91 Bcf from the previous week. Stocks were 298 Bcf less than the same time last year and 25 Bcf above the five-year average of 2,931 Bcf. In the East Region, stocks were 40 Bcf below the five-year average following net withdrawals of 58 Bcf. Stocks in the Producing Region were 11 Bcf above the five-year average of 783 Bcf after a net withdrawal of 29 Bcf. Stocks in the West Region were 55 Bcf above the five-year average after a net drawdown of 4 Bcf.

The 91 Bcf figure was on the bullish side of the market compared to wide-ranging expectations calling for a 40-99 Bcf withdrawal. It increased the year-on-year deficit by roughly 50% or 95 Bcf to 298 Bcf because the withdrawal compared against a 4 Bcf injection from a year ago. That shortfall could increase significantly — possibly by another 100 Bcf — next week when the storage withdrawal will surely dwarf last year’s comparable 16 Bcf withdrawal.

The natural gas futures market swung wildly back and forth Thursday morning following the storage report. The reason for the market’s erratic behavior is easily explained, said Tom Saal of Commercial Brokerage Corp. in Miami. “Everyone cancels their market limit orders close to the prevailing price level at 10:28 a.m. This creates a vacuum both above and below the market. Because the only limit orders that remain are at least a dime away from the market, it doesn’t take very much buying or selling to propel the market in these gargantuan moves.”

In addition to storage-related buying, the market was pressured higher Thursday in sympathy with gains in the nearby crude oil market. January crude advanced 58 cents to $27.29 on increasing concerns over both the Venezuelan strike and over strong words from the Bush administration on Iraq.

Propelled by a winter storm across much of the East Coast Thursday, physical natural gas prices also gave the futures market the green light to proceed higher. NGI‘s Henry Hub averaged $4.35 Thursday, up 12 cents for the day.

While storage, crude oil futures and natural gas cash prices will continue to influence the natural gas futures market, the real verdict will be handed down by weather prognosticators. With the medium-range outlooks from the National Weather Service calling for a mid-month warm-up for much of the nation, many traders are anxious to see if updated private forecasts due out Friday morning agree. If they do, it will only increase the profit-taking already expected Friday.

Having broke above its recent trading range, January has support associated with what previously served as resistance in the mid-$4.30s. On the upside, the new target is the psychological mark at $4.50.

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