Despite a bearish 87 Bcf storage withdrawal reported on Friday, February natural gas futures surged higher during the second half of the regular session to close at $7.841, up 16.7 cents from Thursday’s close and 45.5 cents higher than the previous week’s finish.

Even with cold in major gas-consuming regions for the week ended Dec. 28, the fact that it was a low-demand holiday week led to only 87 Bcf being removed from underground storage, according to the Energy Information Administration (EIA). The withdrawal was smaller than most expected and the first nontriple-digit pull in four weeks.

Prior to the 10:30 a.m. EST report, February natural gas futures were trading at $7.680. Immediately following the number’s release, the prompt-month contract dropped to put in the day’s low of $7.500 before rallying in the afternoon.

Traders and analysts attributed the smallish withdrawal to reduced demand over a holiday. “The 87 Bcf net withdrawal was bearish relative to expectations and also below the 89 Bcf five-year average level,” said Tim Evans, an analyst with Citigroup in New York. “It’s hard to say at first glance ‘what happened’ but this was a holiday week, which does undercut industrial and commercial demand to some degree. Even so, it’s a bearish result.”

However, Evans noted that Friday’s strong finish in light of such bearish news really threw significant support behind the bulls’ case. “I read Friday’s price action as certainly bullish. We had bearish news, but the market could not sell off much. The swing back to the upside had a rather positive close at the top of the day’s range. It is also interesting that the strong finish came despite the knowledge of some warmer-than-normal temperatures on the horizon.”

Looking at the near term, Evans said a move to $8.250 or $8.500 could be in the cards. “I’m too myopic to see much further than that,” said Evans. “A lot of what occurs depends on what the funds decide to do. They have been heavily short natural gas…and they got even shorter as of Dec. 31.” According to the Commodity Futures Trading Commission’s Commitments of Traders report, the funds are net short 119,951 positions.

“That is the funds’ second largest net short commitment in history,” Evans noted, adding that he was surprised there was not more book squaring to finish 2007. “The all-time record is 122,719, which was notched as of July 31, 2007. In July when they got to this extreme, some of the shorts were chased out of the market with storm threats and other factors. The net short positions were reduced by 40%. It will be interesting to see if there is a similar exodus here, or whether the funds leave their short positions in larger mass. If they all decided to leave at the same time, then the sky is the limit on price. This scenario is unlikely, but it is a possibility.”

Estimating the storage withdrawal was a tricky exercise this time around. Last year at this time 47 Bcf was withdrawn from inventory, but this week was colder than last year’s version. The National Weather Service reported for the week ended Dec. 29 a greater-than-normal accumulation of heating degree days (HDD) relative to last year. Ohio, Indiana, Michigan, Illinois and Wisconsin experienced 237 HDD, or 40 more than last year. New York, New Jersey and Pennsylvania tallied 186 HDD, or 18 more than last year.

Being that the report was for the holiday week that ended Dec. 28, many within the industry were unsure of what kind of withdrawal would be seen. The uncertainty was evident in the industry’s estimates, which ranged from 84 Bcf to 157 Bcf. A Reuters survey of 22 industry analysts was looking for an average withdrawal of 111 Bcf, but Golden, CO-based Bentek Energy’s flow model indicated a withdrawal of 92 Bcf.

As of Dec. 28, working gas in storage stood at 2,921 Bcf, according to EIA estimates. Stocks are 160 Bcf less than last year at this time and 222 Bcf above the five-year average of 2,699 Bcf. The East region removed 53 Bcf, while the West and Producing regions withdrew 18 Bcf and 16 Bcf, respectively.

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