Front-month natural gas futures on Monday broke below psychological support at $5 for the first time since early December as traders see the winter season ticking to a close.

March futures dove to a low of $4.841 before closing out Monday’s regular session at $4.895, down 14.9 cents from Friday’s finish. The last time front-month futures traded lower was back on Dec. 10, 2009 when the January 2010 contract reached a low of $4.837.

Despite the drastic reduction recently in year-on-year and year-on-five-year average storage surpluses, some market watchers are just not sure there is enough time left in the winter heating season to really put a crunch on the supply-demand balance.

“Breaking below $5 and settling below that price level are pretty significant events,” said a Washington, DC-based broker. “Some people did attempt to buy into the decline, but that is not something I would advise here. Sure we’ve had a frigid winter, but we’re almost through it and we still have an awful lot of gas. It would appear that we will exit this storage withdrawal season in pretty good shape, and as you know the shoulder season is not historically a strong period for price. I’m looking south here.”

The broker told NGI the first good support levels come in at $4.450 and then at $4.160. “Below that there is a gap that takes us down to $3.999,” he said. “I don’t think there has been as much recovery in the economy as one might think, so I just don’t see where the gas demand will come from. We’re also the port of last resort for LNG [liquefied natural gas] because we can actually store it, so we’ll likely see a lot of the stuff coming our way in the months ahead. I see a lot of bearishness in the market and that is why I’m recommending clients to get short. Client objectives down at $4 are probably not all that unrealistic.”

On the near-term weather front, at least one forecaster sees a temporary warm-up in the East. “This week’s weather is warmer on the East Coast and colder in the Midwest due to adjustments in storm track and cold air mass expectations,” said Matt Rogers, president of Bethesda, MD-based Commodity Weather Group. His data showed that a major winter storm is possible in the East next week, but warmer trends are seen building into the Midcontinent by the 11- to 15-day period.

Analysts see traders jumping the gun in their assessment of the market impact of the eventual end to the winter heating season. “It is an often yearly ritual, with traders discounting the end of the heating season in the middle and end of February. At this stage, the forecasts are not calling for warm readings, only normal ones in the key Northeast,” said Peter Beutel, president of Cameron Hanover.

Beutel is of the opinion that the cold weather is going to stick around for a while and suggests that traders might be premature in looking beyond the end of the heating season. “It takes three solid weeks to break a trend in temperatures,” he said.

Funds and managed accounts increased their exposure slightly to the short side of the natural gas futures market. For the week ended Feb. 16 the Commodity Futures Trading Commission in its Commitments of Traders Report showed that the combined natural gas futures and options managed money component on IntercontinentalExchange (ICE) increased long positions by 12,554 (2,500 MMBtu) contracts and raised short holdings by 6,290 contracts. At the New York Mercantile Exchange long futures and options positions fell by 1,457 (10,000 MMBtu) contracts and shorts rose by 2,372 contracts. After adjusting for contract size total long positions increased by 1,681 contracts, but shorts added 3,944. For the five trading days ended Feb.16, March futures rose 2 cents to $5.310.

©Copyright 2010Intelligence 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.