In its first regular session action as prompt-month contract, March natural gas futures — propelled by cold in the Midwest, inflation concerns and rumors of a record storage withdrawal — ran up to a high of $8.130 before finishing Wednesday at $8.045, up 10.2 cents from Tuesday’s close.

“February’s expiration on Tuesday was about as dull of an expiration as I can remember. There was no range and no real action,” said a Washington, DC-based broker. “The March contract has picked up right in the same price area that February was trading and I think the support and resistance lines are still in place. Support should come in around $7.500 and selling is likely to be triggered up near $8.250.”

The broker added that the Federal Reserve’s interest rate cut Wednesday, for the second time in just over a week, likely played a small role in natural gas futures trading. The Federal Reserve reduced the federal funds rate by a half point and signaled that further rate cuts were possible.

“I think there was a lot of focus put on the Fed decision Wednesday,” the broker said. “With the Fed basically injecting money into the system, it really is deficit spending any way you slice it. Between the stimulus package and the interest rate cuts, I think it really brings inflation to the forefront. When that stimulus package was announced, every commodity from natural gas to corn to lumber rallied. I think we may have seen some of that Wednesday as the cut added to inflation jitters. While the Fed said they saw the risk of inflation diminishing, traditional economics would disagree.

“Crude rallied off the Fed news Wednesday, and I think there might have been a little spillover into natural gas futures,” she said. “It is also pretty cold in the Midwest, but that is expected to be short-lived as warmer temperatures are forecast to move in [over] the next few days. Overall, we are definitely still bearish natural gas…but not overwhelmingly so.”

All eyes are now focused on Thursday morning’s natural gas storage report for the week ended Jan. 25 — and this time the attention is well deserved. While last week’s rumors of a gut-busting 300 Bcf withdrawal have subsided, the energy industry is still expecting a near-record withdrawal in the report. A Reuters survey of 24 industry players produced an average withdrawal estimate of 258 Bcf, which would be a mere 2 Bcf shy of the all-time withdrawal record of 260 Bcf, which was recorded for the week ended Jan. 17, 1997.

“We are hearing that there could be a withdrawal of 240 Bcf to 260 Bcf,” the broker said. “With all of the talk and rumors about a historically high withdrawal, the upside in natural gas futures could be experiencing some psychological support. In addition, there could have been some short-covering ahead of the report’s release.”

Whether or not the withdrawal is record-breaking, it is sure to dwarf last year’s withdrawal of 185 Bcf, which happens to be the five-year average pull as well.

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