Following a disappointing session Tuesday that had many bulls wondering if the party was over, natural gas futures spiked appreciably in the last 30 minutes of trading Tuesday to fill in a nagging two-month-old gap off the April daily chart. The American Gas Association’s announcement that 132 Bcf was withdrawn from storage last week spawned the usual Wednesday afternoon volatility as local and trade buying added to the short-covering seen earlier in the day from non-commercial speculative accounts. The April contract settled at $2.566, up 9.9 cents on the day.

According to the American Gas Association, 46 Bcf and 9 Bcf were withdrawn from the Producing Region and the Consuming Region West respectively, with the Consuming Region East accounting for the remaining 77 Bcf. The 132 Bcf net decrease was in the middle of the wide range of expectations in the 110-160 Bcf area. However, versus both the 64 Bcf withdrawal reported last week and last year’s 73 Bcf drawdown, Wednesday’s figure was undeniably bullish, giving buyers the go-ahead to press prices to new two-month highs.

Storage now stands 53% full at 1,748 Bcf versus 24% full at 786 Bcf at this time last year and 36% full at 1,178 Bcf averaging the last five years. In absolute terms, the 962 Bcf year-on-year surplus is at its lowest level since mid-December. However, as a percentage of gas left in the ground, the surplus is at a new high of 55%.

For Ed Kennedy of Pioneer Futures in Miami, the market’s ability to settle above the key technical threshold at $2.515 is “very constructive,” prompting him to suggest the market will soon make runs at much higher levels. “The move this [Wednesday afternoon] was significant, to say the least, and I would not be surprised to see this thing test the $2.58 level….A break above $2.58 would prompt the [fund traders’ computer systems] to send out buy signals and that could take us even higher,” he said. And while he would not give a timeframe for this move, Kennedy did say that the $2.92 high notched Dec. 26 by the April contract could come into play.

Although the short- to intermediate-term technicals may be very supportive, Kennedy was quick to warn of the ominously bearish fundamental situation. “This is a rally purely for technical reasons. This market needs to realize that it will likely enter the injection season with a record-setting 1.6 Tcf of gas in the ground.” In the event the market moves lower today, Kennedy would look to sell moves below $2.44. A break below $2.38 would add to his confidence in that short position.

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