Natural gas futures traders experienced a bit of deja vu as the April contract followed Tuesday’s 4.4-cent decline with another 4.4-cent reduction for Wednesday, leaving the prompt-month contract to close at $4.303.

Wednesday trading also mimicked Tuesday’s in that a new low for the down move was recorded. The April contract reached as low as $4.280 in morning trade, just pennies away from pivotal support located at $4.260. The $4.260 price level stands roughly as a 50% pullback from the September to January rally (see Daily GPI, March 17). Despite the new low, some market watchers believe the bearish move could be running out of steam.

“We’ve been forecasting this decline for a number of weeks and it has come to fruition. We’ve been grinding lower, but that could end in the near term,” said Tom Saal, a broker with Hencorp Futures in Miami. “The pattern on the Market Profile says we could be bottoming here. We’ve transitioned from the winter to a pure shoulder season period where the market will soon focus on injections. Injection patterns have a different time horizon than the immediate impact of cold weather, so the market could take its time here. As storage operators start to look at procuring supplies for next winter, summer prices could be bolstered.”

Saal said he is backing off a bit from his sub-$4 prediction. “If this thing is going to break below $4 it is going to have to happen quickly based off this Market Profile pattern,” he told NGI. “It still could happen, but it is not as likely now. We’re finding that people who were selling are now disappearing. It’s clear that we are losing sellers at these prices.”

Other traders are factoring in a weak technical picture, but they admit to a lack of interest in following prices lower from current levels. “We are in the shoulder months, so I don’t know how much lower traders can press the market,” said a California broker. “Last time the market was this low, it caught a lot of holders of short positions by surprise.”

He added that most of his activity was to protect clients with exposure to higher prices. “I have been doing long June-October strips on the New York Mercantile Exchange and a little AECO and SoCal basis trades to go along with them.” The broker seems to have little concern about prices working lower. “No one comes in and buys $4 natural gas put options. I have never seen anyone do that, and if anything, they come in and sell them.”

The purchase of $4 put options may be a tough trade for some, but some technical analysts see a case for prices working significantly lower. A Washington, DC-based analyst suggested that an important test of the $4.260 support may prompt further weakness, and should that support fail, a gap on the charts is providing a tempting technical target. If that were to be breached, prices would be set up to drop more than a half dollar, he said.

When October 2009 futures expired and November became the spot month, a large gap was left on the price charts as the market adjusted to the reality of the winter heating season. “We look forward to a test of the gap made back in September; $4.260 is not quite the top of the gap but it’s around that area, and [a] 0.618 [retracement] is below the gap at $3.820 on our count. If you break 0.500 [retracement also at $4.26], there is reason to look for the market to work lower and fill that gap,” the analyst said.

Turning attention to Thursday morning’s natural gas storage report for the week ending March 12, it appears the days of triple-digit withdrawals packed up and left when the colder temperatures did. A Reuters survey of 28 industry players produced a withdrawal range of 11 Bcf to 44 Bcf with the average expectation coming in at a 28 Bcf draw. Bentek Energy projects a withdrawal of 23 Bcf, which would bring inventory levels to 1,603 Bcf. The research firm expects the East and West regions to draw 19 Bcf and 7 Bcf, respectively, while the Producing Region actually injects 3 Bcf.

The number revealed Thursday morning at 10:30 a.m. EDT by the Energy Information Administration will be compared to last year’s date-adjusted 42 Bcf draw for the week and the five-year average draw of 65 Bcf.

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