Living up to the old trader adage that “anything can happen on expiration,” the April natural gas futures contract on Thursday explored both higher and lower price levels before anticlimactically going off of the board nearly unchanged from Wednesday’s close. The April contract traded between $9.385 and $9.640 before expiring at $9.578, up six-tenths of a cent from the previous day’s close. May futures had a similarly adventurous day, trading between $9.465 and $9.740 before closing at $9.687, up two-tenths of a cent from Wednesday’s close.

After trading down to a Thursday morning low of $9.385, April natural gas futures received a price boost after the Energy Information Administration (EIA) reported that 36 Bcf was pulled out of natural gas storage for the week ended March 21. While the 36 Bcf draw was seen as bearish by some, the April contract jumped higher to put in a $9.440 tick just after the 10:30 a.m. EST report. From there, the contract pushed higher, recording the day’s high in afternoon trading.

“The 36 Bcf net withdrawal from storage for last week was light on expectations and light on the 40 Bcf five-year average pull as well, although not a giant miss,” noted Tim Evans, an analyst with Citigroup in New York. “Still, this suggests that despite some cooler than normal temperatures, the seasonal warming trend may have lifted temperatures to the point where we don’t have quite the same sensitivity in our heating demand.”

Going into the report, withdrawal estimates within the industry seemed to range from 32 Bcf to 57 Bcf. A Reuters survey of 21 industry players homed in on a 42 Bcf withdrawal, while Golden, CO-based Bentek Energy said its flow model was indicating a 32 Bcf pull. The actual 36 Bcf withdrawal was much larger than the date-adjusted 11 Bcf withdrawal from the same week last year.

As of March 21, working gas in storage was 1,277 Bcf, according to EIA estimates. Stocks are 240 Bcf less than last year at this time and 33 Bcf above the five-year average of 1,244 Bcf. The East region withdrew 33 Bcf and the West region removed 7 Bcf, while the Producing region flipped to injections by depositing 4 Bcf.

The issue now will be whether the industry can refill storage to a desired 3,200 Bcf during the 32-week injection season, which historically starts April 1. Last year 1,983 Bcf was injected and took supplies to more than 3,500 Bcf during an injection season free of major weather and hurricane interruptions. That feat may have to be repeated. If the withdrawal season ended with this last report, injections of 1,923 Bcf would be needed to take supplies to 3,200 Bcf, but at this time of year the summer weather and the tropical outlook are anything but clear.

Breaking down the storage situation, Lehman Brothers analyst Daniel Guertin noted that this week’s cold could really take a chunk out of reserves. He added that on a population-weighted basis, (last week’s temperature) was inline with the 30-year normal, but was 11% colder than the same week in 2007. “The colder-year-on-year change resulted in a modest increase in the year-on-year U.S. storage deficit,” he said in a research note. “The current week, however, will end up much colder than the same week last year, and this will result in a sharp increase in the deficit when the EIA natural gas storage statistics are released next Thursday for the week-ending March 28.”

Exacerbating the situation, Guertin said, is that the last 10 days of March 2007 were “exceptionally warm” across the central and eastern United States, which contrasts sharply to the below-normal temperature pattern that has been in place across the northern tier of the United States in recent days. “In contrast to the colder pattern in the North, temperatures across Texas have warmed to the point that there is some commercial cooling load, but the load is not yet high enough to make a significant impact on storage levels across the United States due to ramp-ups of gas-fired power generation units to meet the added a/c load.”

He added that next week’s storage report will show “a rather high draw for this time of year” compared to the five-year average based on the relatively cold pattern in the Midwest and Northeast, with the year-on-year storage deficit “increasing by 75-85 Bcf and exceeding 300 Bcf.”

Entering Thursday’s trading session, some market technicians saw a positive tone to the market. “$9.670 marks the 0.618 retracement of the $10.294 to $8.664 decline , and if natgas can close above this level then the next hurdle becomes the 0.7862 retracement up at the $9.950 level,” said Walter Zimmerman of United Energy.

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