The debate over whether Tuesday’s $5.458 low for the move was in fact the bottom of the bearish trend continued to rage Wednesday as January natural gas futures pushed to a session high of $5.792 in morning trade but failed to hold on to a majority of the gains as a wave of selling arrived in the afternoon. The prompt-month contract ended up closing the day’s regular session at $5.686, up 10.7 cents from Tuesday’s close.

Those who believe that a bottom is already in point toward the time of year, when winter’s chill firmly moves into a number of regions and storage gas begins to pump to the utilities. However, some market watchers think the healthy levels of gas in storage could lead to even lower prices before a rebound later in the winter.

“Everyone was calling the $5.990 front-month low from Oct. 27 a bottom, but we finally broke below it last Thursday — and our new low is some 50-plus cents below that level,” said a New York-based energy analyst. “I don’t know if we have seen the lows yet because the current storage situation does not have too many bears trembling. We will have to see some significant prolonged cold arriving for this thing to turn around, so for now I think lower values are still on the table.”

A New York floor trader was less convinced that the downside remained open. “I think we have seen the bottom here. We bounced off $5.45 to $5.50 a couple of times, and I think the market can trade up to $6 by the end of the week,” he said. “The last couple of days has seen trading in tight ranges, and the market did trade from $6.35 to $6.40 down to $5.45 over the last four to five days, and I’m looking for a nice rally in the next couple of days.”

Analysts suggest that over recent trading sessions there has been a major rethinking of the position of natural gas in the greater economy and “one that fits in well with this market’s overarching schizophrenia,” said Peter Beutel of Cameron Hanover.

According to Beutel, Dow Jones describes it as a “sense that new supplies will far outstrip new demand in 2009. Even though exploration and drilling programs are being reduced or delayed by the industry’s biggest players, production will be increasing, based on higher prices and consumption models from 2006, 2007 and the first half of 2008.” He added that the expansive measures taken up until recently were all based on ongoing growth of demand. “After years of steady growth, without any major declines in a quarter of a century, that paradigm was compelling. In fact, we still feel it is,” he said.

That paradigm was tempered somewhat with the Tuesday release of the Energy Information Administration (EIA) Short-Term Energy Outlook (see Daily GPI, Dec. 10). The EIA forecasts a slight dip in demand to 63.33 Bcf/d in 2009 from 63.50 Bcf/d in 2008. Demand in 2007 was 63.16 Bcf/d. “In 2009, consumption in the residential, commercial and electric power sectors is expected to grow, albeit slightly. However, poor economic conditions both domestically and worldwide are expected to hamper U.S. industrial production activities through the forecast period. As a result, natural gas consumption in the industrial sector is expected to decline by 2.4% in 2009,” the report said.

Turning attention to Thursday morning’s natural gas storage report from the EIA, it appears that most industry watchers are looking for a withdrawal between 70 Bcf and 85 Bcf for the week ended Dec. 5.

Evergreen, CO-based Bentek Energy said its flow model indicates a withdrawal of 70 Bcf, bringing stocks 2.4% below the five-year high and 3.4% above the five-year average. The research and analysis firm said the East and Producing regions will likely withdraw 66 Bcf and 5 Bcf, respectively, while the West region actually will inject 1 Bcf. A Reuters survey of 23 industry players produced a withdrawal expectation range of 65 Bcf to 112 Bcf with an average pull expectation of 83 Bcf.

The number revealed at 10:35 a.m. EST Thursday will likely be bearish when compared to historical figures. Last year 129 Bcf was pulled out of storage and the five-year average withdrawal for the week is 108 Bcf.

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