Traders on Wednesday appeared to be tempering their expectations of cold weather being able to prompt market gains as the January contract posted a decline for the third straight day. The prompt-month contract recorded a low of $4.511 in afternoon trading before closing the day at $4.530, down 23.2 cents.

The January contract has now plummeted 66.2 cents over the last three regular trading sessions. Stout storage inventories and moderating near-term weather forecasts have many traders and analysts looking down instead of up.

“With storage at a record high and the overall supply-demand balance still reflecting an underlying surplus, we think it will take a consistently cold picture in order to push prices back to the upside,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “In the absence of such a forecast, further downside price erosion seems likely.”

The National Weather Service’s (NWS) eight- to 14-day forecast covering Dec. 10-16 is calling for above-normal temperatures for much of the western third of the country, the southern half of Texas and the extreme Southeast, while the rest of the country is expected to see normal temperatures for this time of year with the exceptions of northern North Dakota and Minnesota, which are expected to see below-normal conditions.

Other analysts see the impact of cold weather diminishing as well. “The temperature premium is being extracted from the market this week following a shift in the forecasts toward more seasonal trends that extend out into the third week of December in some cases,” said Jim Ritterbusch of Ritterbusch and Associates.

It is his belief that if sustained cold does not show up soon, the burdensome storage surplus will grow further. “While the price impact of this huge overhang is being blunted to some extent by speculative buying interest at this early stage of the heavy usage period, it doesn’t appear sufficient to preclude fresh contract lows with the January futures adjusting downward toward the recent December contract expiration of $4.46,” Ritterbusch said.

The NWS forecast for December through February shows a broad portion of the country from the Pacific Northwest as far south as northern Arizona to Michigan as being subject to above-normal temperatures. The Gulf Coast and Southeast from South Texas to Virginia are expected to see below-normal temperatures.

The Commodity Futures Trading Commission (CFTC) released figures Monday showing a continued strong bias to the short side of the market by the managed money component of natural gas combined futures and options trading. For the week ended Nov. 24, the CFTC reported that managed money long positions increased 1,894 contracts to 133,444 and short positions fell 4,598 contracts to 194,046. Total open interest stands at 892,079 contracts. For the five trading days ended Nov. 24, January futures fell 14.1 cents to $4.766.

While a number of industry participants are expecting to see one final storage injection to cap off the month of November, Evans said he is expecting the Energy Information Administration to reveal that 15 Bcf was withdrawn for the week ending Nov. 27.

Bentek Energy is projecting an injection of 3 Bcf, which would bring inventory levels to a record high of 3,838 Bcf. The estimate includes a 4 Bcf injection in the Producing Region, a 1 Bcf build in the West Region and a 2 Bcf withdrawal in the East Region. The research firm noted that an injection would result in a net injection for every week in the month of November, a feat that has only been accomplished one other time during November 2001.

“For the total activity in the U.S., only four out of the last 15 years have resulted in net injections for the month,” Bentek noted in its weekly storage outlook. “The largest November injection totaled 122 Bcf in 2001 and the largest withdrawal was 229 Bcf in 1996. However, 2009 will be the fifth year for a net injection. A 3 Bcf injection would bring the total for 2009 to 50 Bcf and would be the third largest November injection on record.”

The number released Thursday morning will be compared to last year’s 64 Bcf draw for the corresponding week and the five-year average pull of 43 Bcf.

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