Despite the release of a storage withdrawal that was inline with expectations, April natural gas futures bounded higher Thursday, seemingly on continued strength in the petroleum complex. April natural gas rose 21.9 cents to $10.230, and the May contract rose 22.8 cents to finish at $10.306. April crude oil rose 41 cents to $110.33 after trading as high as $111.00, another record.

While many market participants saw the Energy Information Administration’s report of an 86 Bcf withdrawal as expected, others classified it as somewhat bullish.

“Traders were expecting an 82 Bcf withdrawal and they got an 86 Bcf pull instead and said ‘that’s a reason to buy it,’ but that’s not what is going on,” said a California broker. “With heating oil at $3.12/gallon and crude oil at $110/bbl, natural gas doesn’t stay at $8. It’s going to $13 based on the idea it can’t go down. There are plenty of buyers underneath, and the sellers are waiting. Lord knows what will happen if we have a hurricane,” he said.

Strength in the natural gas market is sometimes cited as part of a broader shift by investors to petroleum and commodities to counteract dollar weakness, but top analysts don’t see issues relevant to the falling dollar as important to natural gas.

“That seems to be more of an issue for oil than natural gas,” said Mike Rothman, senior managing director of ISI Group in New York. He added that this past summer “when the ratio of crude oil [prices] to natural gas got to something like 14:1, we pulled the trigger and bought natural gas.”

According to Rothman, that also made U.S. natural gas cheap relative to gas outside the country. “If you do the math, that has been what is going on. I don’t think it [the discount of gas to oil] is over yet, and I look for natural gas to continue to appreciate relative to oil. Production is still at 19 Tcf per year and it has been there for 12 years.” Rothman conceded that natural gas trading can get “complicated” because of the need to make two weather calls per year, but “it got too cheap, and I don’t think it’s fully back to its Btu arb[itrage] with oil.” Asked when he would exit the trade, he said, “We are simply not there yet.”

Others are more focused on absolute price levels than a complex arbitrage. “I had an objective of $10.400, but I can’t rule out a move to $11,” said a Houston broker. He said that as bid week approached “I will start assessing bid week fundamentals and a lot will depend on if we get the sustained cold weather in the East. Open interest in the options need to be looked at, and this market has been three steps up and one step back.”

Longer-term weather forecasts may add another three steps. The National Weather Service’s eight- to 14-day forecast shows below-normal temperatures throughout the northeast quadrant of the country encompassing an area from Minnesota to Illinois to Virginia. In addition, portions of the Pacific Northwest are also forecast to be below normal. Only Arizona and New Mexico are expected to be above normal.

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.