Proving that it is unwise to say “never” when talking about commodity market price levels, traders were reminded of the valuable lesson Wednesday as February natural gas futures continued recording new lows and broke below $5 — a number that some traders and analysts thought would “never” be broken on this bear move. The prompt-month contract ended up putting in a $4.940 low before closing the regular session at $4.970, down 21.4 cents from Tuesday’s finish.

The venture below $5 was the first for a front-month contract in more than 27 months. With spotty winter cold and economic woes digging in for what appears to be the long haul, the ride lower might not yet be over, according to some market experts.

“This is the first time we have seen a $4 handle since late September of 2006. I think the 57-cent drop of the last two sessions really surprised a lot of people, especially with the real cold currently out in the Midwest,” said Steve Blair, a broker with Rafferty Technical Research in New York. “They’ve had a run of negative temperatures, storms and blizzards. You would have thought that would have made a larger impact on storage draws, but we haven’t really seen it. I guess the market is telling us that we have an overwhelming amount of gas, which is a result of increased domestic production, increased LNG [liquefied natural gas] imports and a significant amount of demand destruction due to the faltering economy. On top of that, we’ve had a very sporadic winter in the Northeast. The further we get into the winter heating season, the less time there is for a lasting extreme blast of cold temperatures.”

Looking at support numbers, Blair said his next “major support” resides at $4.750. “Thursday morning’s storage report from the Energy Information Administration will be very important to the direction of the market,” he said. “It looks like most expectations are for a draw between 100 Bcf and 110 Bcf. Even if we get a pull in that neighborhood, I don’t think it will be a big enough departure from the historical draws for the week to really change a lot of minds here. We will need a couple of really large numbers to turn this market around.”

For the week ended Jan. 9, a Reuters survey of 23 industry traders produced a range of draw estimates between 89 Bcf and 137 Bcf with an average withdrawal expectation of 106 Bcf. Evergreen, CO-based Bentek Energy said its flow model indicated a 101 Bcf withdrawal, which would bring stocks 8.2% below the five-year high and 2.8% above the five-year average. The research and analysis firm expects a 79 Bcf draw in the East region, a 20 Bcf draw from the West region and a 2 Bcf pull from the Producing region.

The number revealed Thursday morning at 10:30 a.m. EST will be compared to last year’s 91 Bcf draw and the five-year average draw for the week of 88 Bcf.

Economy watchers were not happy with the 8:30 a.m. EST release of retail sales data on Wednesday. The Commerce Department reported that December retail sales fell an unexpectedly large 2.7%, whereas the market had been expecting a fall of only 1.2%. November retail sales came in at minus 1.8%. Retail sales measure total receipts for durable and nondurable goods. Two-thirds of gross domestic product is determined by consumer spending, and retail sales are an important determinant of economic growth.

Some observers note that economic reports are likely to stand shoulder to shoulder with production data in the months ahead. Jim Ritterbusch of Ritterbusch and Associates noted that while the Energy Information Administration in its recent Short Term Energy Outlook reduced estimates of production for 2009, the economy is likely to remain a focal point with traders (see Daily GPI, Jan. 14).

“While this expected output hike of 0.7% is lower than last month and considerably smaller than the hike of almost 6% last year, this contrast between a projected production increase and a demand decline will continue to offer a bearish dynamic to this market as this year proceeds. Within such an environment, economic releases, such as unemployment reports, etc., that were usually shrugged off by this market in the past will take on increasing importance during the coming months,” Ritterbusch said.

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