Late-week trading at Nymex has been the a bull’s domain of late and last Friday was no different as natural gas futures continued to feed off the weekly Thursday morning reminder that the industry is facing historically unprecedented low storage levels.

Whether it was the March contract, which expired last Wednesday at $9.133, or the new prompt month April, it didn’t seem to matter to natural gas contract buyers who have buoyed the market higher on each Friday trading session during the month of February. April advanced 61.6 cents to close at $8.101 Friday, the highest settlement of a non-winter month in the 12-year history of natural gas futures trading.

In the modern era of natural gas storage data dating back to December 1993, levels have never dipped below the 697 Bcf low seen in April of 1996. However, judging from the likelihood that there will be five more weekly withdrawals against the Feb. 21 level of 1,014 Bcf, it is almost a foregone conclusion that storage will drop to new record low levels this year. Actual degree day tallies for last week will not be available until Monday, but using forecasts last week, analysts are calling for a draw anywhere between 185-220 Bcf.

“We could easily see a 200 Bcf reduction,” said Greg Parks of Chicago-based Providio Trading Consultants, noting that the cold air spread west last week to cities such as Denver, which have been relatively mild for much of the winter. “You can bet the residential load was heavy.”

Looking ahead, the string of hefty storage withdrawals may not come to an end this Thursday. Based on the intermediate-term weather forecasts released Friday, strong demand for gas should continue. According to the latest six- to 10-day and eight- to 14-day outlooks from the National Weather Service, below normal temperatures are expected across the northern tier of the country through at least March 14. Combine that with the possibility of air conditioning load associated with above normal temperatures predicted for the Southwest and Florida, and you have an undeniably bullish weather forecast, traders agree.

However, market watchers are quick to point out that March and April are different beasts. “This market is like Wile E. Coyote that has run off a cliff, but has yet to look down,” said Ashmead Pringle of GSC Energy in Atlanta. “We don’t really understand this strength. The market is in a runaway blow-off mode that is attributable to low stocks, weather and war.” Because he views these factors as relatively short-term phenomenon, Pringle believes the market could be at much lower levels in a month’s time. Accordingly, he is looking to take advantage of the unusual pricing by selling the April-May spread. At the same time, he believes the market’s volatility is not sustainable. “You could sell a straddle [comprised] of $8.00 calls and puts in an effort to take advantage of the high volatility out there.”

However, not all traders are as bearish. From a technical standpoint, April futures made some headway Friday by filling in the continuation gap created by the rollover between March and April. Fueled by fund and local buying, the April contract rocketed a dollar before trading was halted by Nymex for 15 minutes. When trading resumed, prices extended to $8.50 before profit-taking took hold. Even if April opens lower on Monday and moves down to fill in the $7.70-95 chart gap created by Friday’s open, technicians believe the market will make at least one more attempt at the $9.00-50 levels seen by the March contract just prior to its expiry.

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