After putting in a strong start Thursday, February natural gas futures slumped in afternoon trading to close at $7.674, down 17.6 cents from Wednesday. The current below-normal temperatures in much of the East kept the prompt month contract from giving back all of its recent gains, but a warm-up in the near future could exert more downward pressure on prices.

The February contract looked as if it was making a run at breaking above $8 on the day as it recorded a high of $7.930. However, the move ran out of steam in the afternoon as February gas settled just 2.4 cents higher than the day’s low at $7.650. Despite the drop, some market watchers are not convinced that the up move is over.

“The February contract picked up on Thursday where it left off on Wednesday. It roared higher to threaten $8 but ended up collapsing midway through the day,” said a Washington, DC-based broker. “I really am not sure why it fell apart because the move had looked so strong. The interesting thing was that this rally was in the face of a weather warm-up that we know is coming. Yes, we have cold now, but forecasts are calling for above-average temps in the near term. Retaining some of the recent price gains speaks to the bull strength in this market currently.”

Despite the recent price strength, the broker said he wasn’t quite ready to identify himself as bullish. “Our technical models have been bullish since we passed through $7.400. You have to remember after the price drop of a few months ago, we based for a good while when we traded sideways for a little more than a month, so some sort of an advance was expected,” he said. “The question now becomes whether we get to $8 or $8.500. Right now, I would say we are in an up move, but I am not ready to say we are in a raging bull move. If we break through $8, then you could deem me bullish on this thing.”

Crude on Thursday once again reached the $100/bbl level, but this time it traded to a high of $100.05/bbl before settling the day at $99.18/bbl. One Northeast broker said it was “obvious” that the on-again off-again relationship between crude and natural gas was in the off position. On a rough BTU comparison basis, February crude on Thursday settled at $16.53/MMBtu, or a $8.856/MMBtu premium to February natural gas.

Looking ahead, forecasters say warmth building in the Midcontinent will spread north and east, raising short-term temperatures substantially. Forecaster Accuweather said high pressure will continue to build toward the east, ushering in warmer air behind it. “The warmer air will gain a grip from the central Rockies to the southern Plains on Thursday, and by Friday the warmer air will press eastward into the Southeast and mid-Atlantic,” said AccuWeather meteorologist Meghan Evans.

AccuWeather cautioned that the warm-up will increase the snowmelt in areas of the Plains and Midwest currently under a deep blanket of snow and increase the potential for flooding. High temperatures in major energy markets are forecast to surge. The normal high in Chicago this time of year is 30, and Thursday’s forecast high of 25 is expected to jump to 55 by Sunday. Cleveland’s Thursday high of 24 is well below its seasonal norm of 33, but by Sunday Cleveland is forecast to warm to 53.

Some traders suggest that the market is not paying attention. “For now, the market appears to be ignoring an expected significant warm-up during the coming days that will see Chicago temperatures approaching the 50 degree mark,” said Jim Ritterbusch in a note to clients. He added that a return to normal weather patterns is widely anticipated later next week, and above-normal temperatures are expected to persist across the northeast region within the 11- to 15-day zone.

Pricewise, Ritterbusch suggests that the market is at the top end of a $1 trading range. “We now view the $8.00 area as the high side of this expected range in the February contract. But, at the same time, we are leaving open the possibility of a price downdraft back to below $7.00,” he said.

Taking a peek at the Energy Information Administration’s (EIA) natural gas storage report Friday for the week ended Dec. 28, industry analysts are not so sure anymore of a triple-digit withdrawal, which would mark the fourth consecutive pull of that size.

A Reuters survey of 22 industry estimates is looking for an average withdrawal of 111 Bcf, but others think the report might reveal a sub-100 Bcf pull. Golden, CO-based Bentek Energy’s flow model indicates a withdrawal of 92 Bcf, which would bring stocks 5.4% below the five-year high (last year) and 8% above the five-year average. The flow model has the East region down for a 53 Bcf withdrawal, while the Producing and West regions are expected to remove 21 Bcf and 18 Bcf, respectively.

Triple-digit or not, the number revealed Friday morning at 10:30 a.m. EST will be compared to last year’s 47 Bcf withdrawal and the five-year average pull of 89 Bcf.

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