After probing to new lows just after the opening bell, natural gas futures rebounded Monday morning as traders covered shorts initiated during the recent string of losses. However, no sooner had the February contract notched an impressive $2.35 high, than sellers were back at work, rescinding the morning’s advances. The prompt month spiraled lower into the close, finishing the day with a 0.3-cent decline at $2.272.

With nearly all fundamental factors in bearish agreement, traders had little difficulty pressuring the February contract to a gap lower open yesterday. The weather this week is expected to moderate in eastern and Midwest metropolitan areas and cash prices began the day on a slippery downslope Monday. The overall storage picture remains price-negative and futures remain in the downtrend that began a year ago.

By 10:15 a.m. EST the prompt month had extended its losses to $2.21. But the overhead price gap at $2.24-27 loomed large and as soon as the selling interest dried up, the rebound was set in motion.

Looking ahead, Jay Levine of Advest Futures expects the market to eventually break below $2.00, but not before the February contract goes off the board. “In the meantime, I look for a rally. We filled in the small chart gap this morning and traded up to $2.35 today. We have moved down 87 cents without a bounce, and this market is oversold. I would not be surprised to see this thing make a run at the next chart gap up to the $2.55 level,” he reasoned.

One possible catalyst for this rebound, Levine continued, is this Wednesday’s release of fresh storage data. “I am prepared for a big number. I think we will see a net withdrawal on the order of 180 Bcf… If nothing else will, that should help the market firm up a little bit.” Because the market experienced a net withdrawal of 167 Bcf a year ago this week, a net withdrawal of 180 Bcf would translate into the first decline in the oft-quoted year-on-year surplus — currently at 1,127 — in two months.

On the other hand, Thomas Driscoll of Lehman Brothers in New York calls for the surplus to expand by another 20 Bcf or so. Citing degree day data for last week from the National Weather Service showing that last week was slightly warmer than originally forecast, Driscoll has lowered his prediction to a 145 Bcf withdrawal from a 150 Bcf withdrawal. The five-year average takeaway is 137 Bcf.

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