Despite the release of seemingly neutral storage data (46 Bcf withdrawal), the natural gas futures market turned lower Thursday as traders decided to test the bottom end of the market’s recent trading band. Although the selling was steady throughout the session, the downward momentum was not enough to demote spot month prices below support at $5.60. April closed for the session at $5.631, down 9.1 cents for the day.

According to the Energy Information Administration, storage decreased by 46 Bcf to 1,097 Bcf during the week ending March 12. Not only did the 46 Bcf withdrawal fall neatly near the middle of the 25-70 Bcf range of expectations, it also was between the prior two weekly decreases of 28 and 96 Bcf.

Versus historical comparisons, however, the 46 Bcf withdrawal was bearish, falling short of the 82 Bcf figure of a year ago and the five-year average of 81 Bcf. Storage now stands a whopping 443 Bcf above year-ago levels and just 68 Bcf short of the five-year average.

Sources polled by NGI agreed that the storage figure lacked the drama necessary to propel the market outside of its recent trading range. “The market is taking this one in stride,” said George Leide of Rafferty Technical Research in New York. “Buyers have already bought a portion of their summer load and are waiting for a dip to buy some more,” he said.

Chilly weather in the East this week has all but assured the market of another decent-sized withdrawal next week. In fact, Ron Barone of UBS in New York sees strong weather-based demand resulting in an even larger draw next Thursday. “With storage supplies currently at 1,097 Bcf, the industry remains on track to end the traditional withdrawal season (April 1st) with roughly 1 Tcf of natural gas in storage,” he wrote in a note to clients Thursday.

Noting that storage withdrawals have strengthened by 15 Bcf/week since mid-January, Thomas Driscoll of Lehman Brothers in New York has lowered his ending inventory estimate to 1,025 Bcf from 1,050 Bcf. At the same time, he remains cautiously bearish on prices and maintains his second and third quarter price forecasts of $4.50-$5.00. “Our full year 2004 estimate remains $5.00,” he hedged.

On the upside, Leide noted that technicals have become more supportive over the past couple of weeks, driving would be sellers to the sidelines. “If I’m a fund trader, I don’t know if I’m short right now….The market feels comfortably priced in this $5.60-79 range,” he said.

On the subject of fund traders, much attention has been paid lately to the group’s lack of trading activity. According to the latest Commodity Futures Trading Commission Commitments of Traders (COT) report, non-commercial fund traders were net short 11,466 as of March 9, down slightly from the 13,645 positions held as of the week prior. And while that may seem like a large number of shorts, Leide noted the group holds outright shorts of 47,848 and outright longs of 36,382. “Clearly, the funds are in two different camps right now.”

Fresh COT data will be released Friday afternoon. In the meantime, market watchers will turn their sights to technical analysis for price clues. Above the aforementioned $5.60-79 trading band, resistance is seen at previous highs in the $5.95-96 area. On the downside, a break of $5.60 could lead to a quick pullback to $5.40, Leide warned.

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