Tired of exploring the upper end of the range during the prior two sessions only to fail, natural gas futures traders opted to take the low road instead on Friday. Trading within a minimalist $6.02 to $6.115 range, March natural gas futures were actually able to break the two-day streak of settling relatively unchanged. The prompt month settled at $6.093, down 6.7 cents on the session and less than a cent lower than the previous week’s $6.096 close.

The action flip-flopped from Thursday when natural gas futures were stagnant and petroleum futures went for the run (see Daily GPI, Feb. 11). On Friday, March crude settled a measly six cents higher at $47.16/bbl while March heating oil closed 1.55 cents lower at $1.3058/gallon.

IFR Energy Services’ Tim Evans said Friday’s natural gas action was a direct response to its inability to break out during the two previous sessions. “Natural gas futures prices turned lower on Friday, mostly out of dissatisfaction with [their] own failure to make more out of what supportive fundamental news [they] have to work with,” he said. “The 176 Bcf net withdrawal from storage for February 4 was higher than expected and even exceeded the 164 Bcf five-year average.”

Looking ahead, Evans noted that while the weather outlook includes some cooler-than-normal temperatures across the northern U.S. over the next two weeks or so, the problem is that there appears to not be enough to support prices. “We have long argued that the large remaining storage surplus (most recently 262 Bcf over the five-year average) and the shrinking remainder to heating season would eventually dictate a move lower,” Evans said. “The weakness now, in the face of some colder temperatures, tends to suggest just how serious the surplus and the seasonal shift really are.”

The analyst said he believes March futures could retest the $5.95 low from the prior Monday. Beyond that, he pointed to the $5.90 floor from Jan. 12, but noted that any further decline would leave March with just its $5.77 low of January and the corresponding spot floor at $5.71 to prevent a more emphatic breakdown. On the upside, Evans said Friday’s “slippage” sets Thursday’s $6.27 high more firmly in place as resistance.

Some observers feel there is still mileage left for prices to work lower. “We still feel that nearby futures could be overvalued by more than 40 cents,” said Jim Ritterbusch of Ritterbusch and Associates. “Currently, nearby futures are about 68 cents or 10% below levels at the official start of the winter.”

He said that while some of this decline represents a milder than expected heating season thus far, much of the decline represents the normal erosion of weather premium, a process that should continue through the balance of this month.

“As weather becomes less of a pricing influence on a daily basis, focus on the storage supply surplus can only increase, a development that should push values lowe,r even in the face of further expected short-covering from the funds,” he added.

Ritterbusch noted that both fundamental and technical indicators continue to point south and he is not yet ruling out an eventual decline into the $5.70s. Continued “choppy trading should be anticipated.”

The National Weather Service said Friday that a majority of the northern two-thirds of the country will experience below normal temperatures in the Feb. 17-21 period. Florida and Southern California are also expected to experience below normal temperatures. The rest of the country is expected to see normal temperatures with the exception of a majority of Texas, New Mexico and Arizona, which could see above normal readings.

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