The bears could be in for a great 2009 if the first natural gas storage withdrawal of the new year is any predictor of what lies ahead. The Energy Information Administration (EIA) reported Thursday morning that an anemic 47 Bcf was withdrawn from underground stores for the week ended Jan. 2, triggering a significant drop in February natural gas, which closed the regular session at $5.583, down 28.9 cents.

Going into the 10:30 a.m. EST release of the report, February natural gas was trading at $5.786. In the minutes that immediately followed, the prompt-month contract sunk to $5.570. The contract went on to put in a low for the day of $5.550 before inching higher to close.

In what might be the most shocking part of the report, the Producing region actually injected 14 Bcf for the week while the East and West regions withdrew 49 Bcf and 12 Bcf, respectively.

Market experts blamed the smaller-than-expected draw on the holiday week, noting that the withdrawal was probably more of a diversion for the market than a game changer. “The 47 Bcf net withdrawal was at the bottom of the range of expectations and below the 78 Bcf five-year average level,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “The data was also for another holiday week and this likely contributed to the relatively modest rate of withdrawal. We think the market will have to digest this before it can focus back on the upcoming eastern cold snap and the larger storage withdrawals to follow.”

Others agree that the smallish withdrawal is likely a one-time event. “We were looking for a 60 Bcf pull, and the industry consensus appeared to be looking for a 79 Bcf draw, but instead we ended up removing only 47 Bcf,” said Ed Kennedy, a broker with Hencorp Becstone Futures LC in Miami. “That is bearish, but the key is what the weather is going to be like for the second half of January. The independent forecasters have been calling for very cold temperatures through Jan. 19-20, then a warm-up. However, now they are not so sure about the warm-up. The models have been off recently. They were saying a high of 20 degrees in Omaha on Saturday, but now it looks like there will only be a high of eight degrees.

“If that arctic air mass comes in as cold as they are now forecasting, then it could stay colder longer. We will have to see if that happens,” the broker said. “The other thing you have to remember is that if we see normal temperatures for the rest of January, that would be a lot colder than the last five Januarys. Going forward, I think we are going to pull more and more out of storage. I have no interest in the sell side, and I am not that bearish down here for those reasons.”

Heading into the report, most estimates were for a withdrawal between 75 Bcf and 85 Bcf. A Reuters survey of 22 industry players produced a range of pull expectations from 48 Bcf to 116 Bcf with an average draw expectation of 79 Bcf. In addition to being much smaller than the five-year average figure, the actual 47 Bcf draw paled in comparison to last year’s 171 Bcf withdrawal for the week.

According to the EIA, working gas in storage stood at 2,830 Bcf as of Jan. 2. Stocks are now 31 Bcf higher than last year at this time and 87 Bcf above the five-year average of 2,743 Bcf. With the smallish withdrawal for the week, storage gas has now flipped to a surplus relative to last year. Normally these weekly relative changes have little significance, but analysts suggest that it may be the start of a trend that will see the industry with plump if not burdensome supplies by the March 31 end of the heating season.

Those potentially hefty stocks are likely to have major price implications. Jim Ritterbusch of Ritterbusch and Associates said that “the dynamic of a major storage surplus expansion during this quarter will set the stage for an unusually high supply base with which to begin the injection period next spring. This will tend to restrict upside price progress in the more distant contracts despite the need to maintain some hurricane premium beyond the summer months.”

More quantitative traders see a weak market, but they aren’t ready to start selling just yet. A Texas trader, who utilizes pattern recognition techniques, said he saw nothing in recent price action to indicate support for the market. He did add that since current market sentiment was strongly bearish it was necessary to “lighten up” on the bearish side of the market via some kind of price rally before there would be any sustained move lower.

“The broader patterns are indicating weakness, but we don’t have an outright ‘sell’ signal,” he admitted prior to Thursday’s regular session.

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