February natural gas futures eked out a small gain Wednesday as traders adjusted positions ahead of options expiration. At the close February rose 1.8 cents to $4.491 and March added 1.1 cents to $4.501. March crude oil jumped $1.14 to $87.35/bbl.

“$4.35 is a humongous support area so traders are buying in front of that, and options expiration is another factor,” said a New York floor trader. “It looks like people are stacked up buying futures to defend an options position, and that’s why the market has been able to rise 10 cents off the day’s lows [$4.381].”

He added that the $4.50 strike was the one of most concern. “A lot of traders have options positions at $4.50 they need to offset.” Figures show that February $4.50 put and call options tallied 2,503 contracts as of Wednesday’s settlement.

The trader added that once options have settled traders were ready to renew selling. “The black box traders are ready to reload on the short side,” he said.

The steadfast natural gas futures market is something of a curiosity given the outlook for an eastern winter storm juggernaut. Elliot Abrams, AccuWeather.com meteorologist, reported that “the snow fell so heavily in the Philadelphia area that the morning commute turned into a nightmare, with multi-mile backups and hundreds of accidents. Meanwhile, the early snow in Washington and Baltimore turned to rain. Between 7:30 and 9 a.m., the snow advanced into the New York City area.”

That’s just the first part of the storm. “Part two of the storm was causing thunderstorms in western and central North Carolina and includes a second batch of precipitation. This feature will reach the Middle Atlantic states later this afternoon [Wednesday] just as a coastal low pressure area is starting to strengthen. A four- to seven-hour period of substantial snow seems likely with this storm, and accumulation rates can reach 2 inches per hour,” Abrams said on his blog.

Traders will get a chance to determine the impact of recent cold on inventory levels with Thursday’s 10:30 a.m. EST release of Energy Information Administration data. Expectations are for a draw of 171 Bcf, according to a Reuters poll of 26 traders and analysts. Industry consultant Bentek Energy is expecting a pull of 172 Bcf. The actual figure will be compared to last year’s 109 Bcf withdrawal and a five-year average of 152 Bcf.

Analysts are somewhat circumspect as to why prices are falling with Yukon-like cold and snow gripping eastern and Midwest energy markets. “It will be interesting to see how we come out of this selloff. Temperatures are expected to remain colder than normal out through the forecast horizon, and we are likely to have some pretty robust inventory drawdowns in the next two reports and possibly out beyond those,” said Peter Beutel, president of Connecticut-based Cameron Hanover.

“The question is how many longs may still be uncomfortable being long — compared to those shorts who might be scared being short. This market has had a short bias for two years, but this cold weather has become deeply ingrained and some traders have bought into it entirely. Some forecasts are calling for cold readings through February. That could catch some traders short.”

Students of the economy got a picture of energy demand with the 10:30 a.m. EST release of petroleum inventory figures. According to a survey conducted by Bloomberg, expectations for the week ended Jan. 21 were that crude stocks rose by 1.2 million bbl and gasoline inventories added 2.3 million bbl, according to the median of 15 analysts sampled. A rise that is less than expected could be interpreted as a sign of increased energy demand and an improving economic framework for industrial demand for natural gas. The actual figures came in somewhat higher than expected. Crude stocks gained 4.8 million barrels and gasoline inventories rose 2.4 million barrels. Crude and gasoline futures, however, posted stout gains.

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