In its first regular session as the front-month contract, May natural gas futures picked up where April left off — namely in search of higher price levels. The prompt-month contract reached a high of $9.830 before finishing the day at $9.800, up 11.3 cents from Thursday’s close and 66 cents higher than the previous week’s finish.

“I think we were clued in to the strength of this thing after we got the 36 Bcf storage withdrawal report on Thursday and the market actually went up on it,” said Steve Blair, a broker with Rafferty Technical Research in New York. “I would have at least expected a price knee-jerk lower immediately following the report, but we did not even get that. I think a few things were in play. A lot of the industry surveys were calling for a withdrawal in the low 40s Bcf area, but Bentek Energy came in with a 32 Bcf draw expectation, so maybe people were following Bentek. The other thing is we are well below last year’s storage level and we are getting pretty close to the five-year average supply. With some cool weather through the end of March and into April, we could erase the year-over-five-year average surplus.”

As natural gas inventories continue to dwindle, traders are studying the eroding supplies and anticipated heating requirements. Thursday’s Energy Information Administration (EIA) withdrawal report placed supplies at 1,277 Bcf, well below last year’s 1,517 Bcf and just slightly above the five-year average of 1,244 Bcf.

As for trading, Blair said he suspects that the funds might be behind this most recent show of price strength. “When the market came off, I think some of these long funds got a chance to reload and accomplish some more buying,” the broker said. “With storage and near-term weather concerns, I think a lot of these funds still want to see this market go higher. However, I still get the feeling that we have seen the highs for now. I would be a little surprised if we broke above the April highs, but the key word there is ‘little.’ At this point, there is not a whole lot that really blows my mind any more in this market. Once we get firmly into the shoulder month — where we are not drawing and not injecting — in the middle of April, I think we will see a drop in price and then a little bit of stabilization.”

In the view of some analysts, the storage situation will be key in the coming months. “We feel that the spring and summer months will remain well supported by a much lower supply than had been generally anticipated earlier this quarter,” said Jim Ritterbusch of Ritterbusch and Associates.

Ritterbusch is looking for supplies to tighten even further in coming weeks. “We feel that the market will be focusing on the next couple of weekly EIA reports in which cold temperatures will be forcing a renewed contraction in the supply surplus against average levels,” he said in a note to clients.

The EIA’s next storage report will incorporate this week’s weather, and if expectations by the National Weather Service (NWS) are correct, Ritterbusch is right on target. The NWS forecasts above-normal heating requirements in key eastern and Midwest energy markets. For the week that ended March 29, the NWS expected New England to endure 202 heating degree days (HDD), or 18 more than normal. New York, New Jersey and Pennsylvania should have experienced 182 HDD, also 18 more than normal, and the industrialized Midwest states of Ohio, Indiana, Michigan, Illinois and Wisconsin were expected to have seen 188 HDD, or 19 more than normal.

Looking at the most recent Commodity Futures Trading Commission’s Commitments of Traders report, Citigroup analyst Tim Evans said the week ended March 25 showed reportable noncommercial traders punching the sell key again, with 3,666 contracts of long liquidation and 2,861 lots of new short sales on the week. He added that the “6,527 contracts of selling” push the cumulative net short position held by the group to 165,492.

“The coming spring may allow these mega-bears a graceful exit from their positions, but we see ongoing risk of a sharp short-covering spike as well,” said Evans. “We also note the ongoing split here, where the majority of fund managers (84) are on the long side of the market, while it is a minority (51) with the larger positions holding short.”

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