With Thursday’s record storage report withdrawal firmly in the rear-view mirror and a significant warm-up in the East looming for much of February, March natural gas futures went in search of lower prices Friday in a large way. The prompt-month contract put in a low of $7.720 before settling the day at $7.740, down 33.4 cents from Thursday’s close and 21.4 cents lower than the previous Friday’s finish.

“I think Friday’s drop might have been tied into the old scenario of ‘buy the rumor, sell the fact’ with regard to Thursday’s significant storage pull,” said Steve Blair, a broker with Rafferty Technical Research in New York. “In addition, the forecast for February is looking for above-normal temperatures for most of the eastern half of the country. I believe that is what the market is playing off of right now. Looking ahead, we have major support down at the $7.600 and $7.500 areas and I think we will probably test those out, possibly by early next week.”

The 274 Bcf removed from underground stores for the week ended Jan. 25 was 14 Bcf more than the previous largest withdrawal ever of 260 Bcf, which was set during the week that ended Jan. 17, 1997.

“They pulled about as much gas as they could have pulled out because there is only so much that can be removed in a week,” Blair said. “As for the folks who were expecting a 300 Bcf withdrawal, people in that part of the business tell me it is virtually impossible to physically pull that much out in one week, but we did end up coming pretty close.

“The futures market built itself up a week in advance in anticipation of the record withdrawal, so when the number finally came out, it was not much of a surprise. I think we are going to see a pretty interesting dynamic come into play over the next two weeks. While there are supposed to be above-normal temperatures for much of the East, we also could be looking at two pretty strong withdrawals coming up. With some in the industry eyeing a 170 Bcf draw for the week ended Feb. 1 and a 150 Bcf draw for the week [ending] Feb. 8, those would be pretty impressive numbers. However, we would still be above the five-year average, so the market should still be comfortable with supplies.”

Short-term traders Thursday noted that after the release of the storage number Thursday, prices momentarily popped higher and ended up slightly higher on the day. March futures rose 2.9 cents to $8.074, but that did not erase perceptions that the market was headed lower. Some industry insiders argued that the next two withdrawals from storage likely wouldn’t be all that special.

“Over the next two weeks there will be no significant withdrawals, and with the warmer weather I am looking for lower prices,” said a New York floor trader. He added that by next week he expected the March contract to trade down to $7.50.

Analysts putting the pencil to last year’s data suggest that the stout 300-plus Bcf deficit to last year’s storage levels may dissipate by the end of February. “A particularly interesting comparison is the year-over-year data in which the deficit against last year stretched by another 89 Bcf in [Thursday’s] report to a sizable 336 Bcf,” said Jim Ritterbusch of Ritterbusch and Associates. He added that this year temperature patterns were expected to reverse, with a warmer February 2008 countering a cold February 2007.

“It is dynamics such as this rather than absolute supply levels that tend to drive futures pricing, and as a result, we are maintaining an opinion that March and April futures are appropriately priced within the $7.500 to $8 zone and that a test to the low side of this zone could be forthcoming within the next one- to two-week time period,” he said in a note to clients.

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