Carrying over Thursday’s bearish momentum into Friday, February natural gas futures put in a low at $5.423 in morning trade before inching higher late in the regular session to close at $5.516, down 6.7 cents on the day and 45.5 cents lower than the previous week’s close. Despite the bearish week, some market experts are still holding on to their bulls’ club membership cards, albeit a little less tightly.

It appeared traders were still reeling to some degree from Thursday’s surprisingly bearish 47 Bcf storage withdrawal for the week ended Jan. 2. Just ahead of the report, most industry estimates were for a pull of between 75 Bcf and 85 Bcf.

“Natural gas futures are still under pressure from Thursday’s storage report, the corresponding value drop and the continued economy slump, but everything energy-wise received a boost at the end of the regular session Friday,” said a Washington, DC-based broker. “Believe it or not, we are still marginally bullish on gas, but that is fading a bit.

“There is a little bit of optimism amongst the bulls. I don’t know whether it is the belief that slightly colder weather is coming in or something with the Ukraine gas price dispute,” he told NGI. “The trickle-through effect of the Ukraine situation on us in the U.S. is diesel, which a number of countries are looking at as a backup plan. The direct effect on U.S. natural gas is that any spot LNG [liquefied natural gas] cargoes will now certainly go to Europe. The indirect effect is if the crisis drives liquid prices higher, we could see some of that momentum seep over to natural gas values.”

Commenting on the 47 Bcf storage withdrawal, the broker said he had been hearing much larger withdrawal expectations going into Thursday’s report. “I knew people with triple-digit pull expectations…and they work for large former brokerage firms that have now become bank holding companies,” the broker said. “I don’t know how you miss it by that much, but the industry certainly did. The small draw forced the question of whether people are cutting back and putting on long johns due to budget constraints. The weather appeared to be there, but it did not show up in the usage.” In addition, the broker said the market now has to deal with the psychological ramifications of flipping from a deficit to last year’s storage inventory to a surplus.

Looking ahead, he outlined some parameters for futures to the downside. “The $5.210 front-month low from late December might not be safe, but I don’t think we can go much below $5,” he said. “There just is not a whole lot of room to the downside for prices at this point.”

Market bears got some assistance with the 8:30 a.m. EST Friday release of the monthly Employment Report from the Labor Department. An estimated 524,000 jobs were lost in December, making 2008 the worst year for job losses since World War II. Investors had been fearing the worst after last month’s release of November employment data, which showed a loss of 533,000 jobs. This time around the market was looking for a loss of 500,000 jobs. When the November jobs report was released on Dec. 5, the January natural gas contract dropped 27.5 cents to settle at $5.742.

Prior to the release of the report, oil traders were ready for the worst. “We’re still looking at a very weak economic picture and that’s what’s on people’s minds,” said Harry Tchiliguirian, a senior oil analyst with BNP Paribas in London in a radio interview. “If you look at the data coming out of the U.S., it still looks fairly bleak.”

Natural gas prices are likely to be impacted as well. “Since production adjustments to this year’s sharply lower pricing environment have been slow in developing, sustained price rallies will be heavily contingent upon some improvement in non-weather-related consumption,” said Jim Ritterbusch of Ritterbusch and Associates. He added that economic releases such as Friday morning’s employment report could proffer additional anecdotal evidence of further deterioration within the industrial sector.

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