Continuing to retreat from the prior Wednesday’s rally, January natural gas futures on Tuesday continued probing lower in search of meaningful support. The prompt month seemed to find it soon after noon (EST) when it bounced after notching $7.41. January natural gas has not been that low since Sept. 28, when the contract recorded a $7.18 low on the day.

Following the bounce, futures climbed lightly through the afternoon to settle at $7.62, down 21.7 cents. The down-day was also felt in the petroleum futures markets. December heating oil sloughed off 5.1 cents to settle at $1.3927/gallon, while January crude dropped 63 cents to close at $49.13/bbl.

“Looks like last Wednesday’s natural gas rally has been almost completely brought back,” said Steve Blair of Rafferty Technical Research in New York. “While natural gas started down before heating oil on Tuesday, the fact that heating oil continued to slide sure didn’t help natural gas make any rallies on the day.

“I think natural gas is really back down to levels it should be at,” he said. “In Monday overnight Access trading, the low of $7.65 touched our first major support level. In regular session trading Tuesday, we came close to touching our next major level of $7.40, and bounced right off of it. I think we will probably see the market stabilize fairly well right around here, probably until Thursday morning’s natural gas storage report.”

Blair said that if futures are able to break through $7.40, the next level of support is believed to be $7.20.

“I don’t think we will see any huge moves in the market before that report unless something comes out somewhere in the marketplace,” he said. “Otherwise, I think everyone is interested to see what happens with storage to see whether they do make a revision on last week’s report of a 49 Bcf draw.”

Since the 49 Bcf report blew all of the market’s estimates out of the water last Wednesday, speculation has run rampant. In addition to theories of an EIA calculation problem or of storage company reporting errors, some within the industry point to a “must-pull” clause within storage contracts.

IFR Energy Services’ Tim Evans said he believes that explanation holds some water. “In struggling to explain what might have produced the surprising 49 Bcf net withdrawal from DOE storage for the week ended November 19, we’ve now heard the theory that natural gas storage contracts with a ‘must-pull’ requirement for the second half of November may have been responsible for the draw,” he said. “We’ll buy that explanation to a point, as a credible reason why storage levels might have declined by the expected 10 Bcf figure rather than the build that was implied by the temperatures.”

However, Evans said he doesn’t find that excuse fully satisfying, especially because the draw exceeded expectations by such a wide margin and even bettered the 37 Bcf five-year average.

“Have these contract provisions become more demanding in the past few years?” Evans questioned. “In any case, this explanation does not imply an ongoing withdrawal of storage at a greater than average pace and we still anticipate a smaller 20-30 Bcf withdrawal in Thursday’s report, which would run less than the 41 Bcf five-year average and put something back onto the 263 Bcf year-on-five-year average surplus.”

Evans noted that combined with some warmer than normal temperatures in the first half of December, he believes there is not much case for a bullish storage trend, adding that the existing surplus “would already justify a drop to significantly lower levels.”

The storage report for the week ended Nov. 26 will be compared to last year’s 59 Bcf draw and the five-year average pull of 41 Bcf.

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