Traders expecting fireworks on the expiration of February natural gas futures were sorely disappointed Wednesday as the contract failed at an early push to higher prices and ended up going off the board at $4.476, down 2.7 cents. Before taking over as the new front-month contract, March natural gas on Wednesday dropped 2.5 cents to close at $4.420.

The February contract, which has been stuck within a loose range of $4.400 to $4.600 recently, reached a high of $4.665 just after the regular session began. However, bulls could not secure the gains as the contract reached a low of $4.410 before expiring.

March crude futures offered marginal support Wednesday as the contract gained 58 cents to finish the regular session at $42.16/bbl. However, market watchers believe the only thing that is going to be able to turn natural gas prices around in the near term is an extended stretch of much below-normal temperatures.

“Expiration was pretty much a nonevent. A contract’s last day can either make a statement or confirm the recent pattern. I think we certainly saw the latter Wednesday,” said Ed Kennedy, a broker with Hencorp Becstone Futures LC. “Whatever bullish case I can bring up — i.e., weather, I can bring up a bearish case — i.e., production or the economy. Industrial demand is down as the chemical plants have been shut the last few weeks. We are at a stalemate, but we are also below the cost of production. You might think I’m crazy for saying this so early in the game, but prices are attractive, and I think it is a good time to lock in prices for the injection season. No one is going to get fired for buying $4.600 gas.”

Creating a case for the bulls is difficult under the current circumstances, he said. “In order to get prices turned around we are going to need a much-below-normal February and March. The independent forecasters are calling for a below-normal February in the northern tier of states, but nothing as dramatic as January. We could see some pretty good storage withdrawals, but the industrial demand is way off as a result of the economic downturn, so it is a push me-pull me scenario…which means prices should go sideways.”

Sideways would be a continuation of the recent trend, which some market watchers believe is wearing out its welcome. “One could imagine that tension is building for a break one way or the other, but it looks to us as though most traders have stopped struggling here and are waiting to see something — a dramatic storage number, a different temperature outlook, or a sudden price shift — that will make them sit up and take more notice,” said Tim Evans, an analyst with Citi Futures Perspective in New York.

Going into the natural gas storage report Thursday morning for the week ended Jan. 23, Evans said he expects the Energy Information Administration to report that 160 Bcf was removed from underground inventories. Research and analysis firm Bentek Energy said its flow model indicates a withdrawal of 179 Bcf, which would bring stocks 11.4% below the five-year high and 1.5% above the five-year average. Bentek said it expects a 124 Bcf draw in the East region, a 50 Bcf draw in the Producing region and a 5 Bcf deduction in the West region.

The number revealed Thursday morning at 10:30 a.m. EST will be compared to last year’s 240 Bcf withdrawal and the five-year average pull of 184 Bcf.

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