Accelerating the pace of losses notched in Thursday’s disappointing (for bulls) trading session, the natural gas futures market tumbled to new two-month lows Friday as light non-commercial selling went nearly unchecked by either local traders or commercial accounts.

After etching an early low at $5.46, the March contract appeared to stabilize at midday trading as traders braced for a possible short-covering rally into the close. As it turns out, the reverse became the reality when fund traders increased their short holdings in the last 30 minutes of the trading week.

March suffered a marathon-sized defeat Friday, racing 26.2 cents lower to close at $5.397. At 47,210, estimated volume was not high, but it was up considerably from Thursday’s pathetic volume of 38,370.

According to the Energy Information Administration, 195 Bcf was withdrawn from storage last week, dropping domestic inventory levels to 2,063 Bcf as of Jan. 23. Although the drawdown paled in comparison to the 247 Bcf takeaway seen during the same week last year, it easily exceeded the five-year average withdrawal of 165 Bcf. Storage now stands 334 Bcf more than year-ago levels and 163 Bcf more than the five-year average.

The knee-jerk reaction to the storage news was bullish as prices jumped higher in the five minutes following Thursday’s 10:30 a.m. EST release. However, the mood at Nymex quickly changed and prices came under selling pressure Thursday and Friday. While analysts have had a difficult time predicting with any accuracy the size of the weekly storage withdrawal as of late, they all agree that the overall storage situation is bearish.

“Last week’s storage withdrawal was stronger than expected, but it is difficult to label this withdrawal as bullish, especially given the cold weather,” wrote Thomas Driscoll of Lehman Brothers in a note to clients Thursday. Looking ahead, Driscoll believes the higher than typical storage levels and modest storage withdrawals will lead to a continuation of the price softness. “We are forecasting a 2nd Quarter average price of $4.50-5.00 — about $1.50 below January levels.

Similarly, Ron Barone of UBS sees storage as a price depressant and calls for February through April composite spot prices in the $4.40-60 range, down from a January level of roughly $6.00. “With overall national temperatures continuing to average below normal, we expect to see another sizable withdrawal in the next storage report. This — when compared against the pending 208 Bcf year-ago withdrawal comparison — should yield little change in the surplus upon the release of the next EIA report.

“Thereafter, we believe the surplus could approach the 350-450 Bcf range by late February, considering the latest overall temperature forecast, some level of ongoing demand destruction, and the following three withdrawal comparisons of 150 Bcf, 203 Bcf and 154 Bcf.

In daily technicals, Tim Evans of IFR Pegasus in New York sees potential support clustered in the previous set of low in the $5.22-24 area. Should the buying there fail to prop up the market, Craig Coberly of GSC Energy in Atlanta sees Gann trendline support at $5.15.

According to the latest Commitments of Traders report released Friday, non-commercial traders increased their net short position to 32,901 positions from 27,100 as of the week ending Tuesday. While it is possible that these speculative traders could reverse and cover their positions at any time, this is not their calling card.

Historical data available to NGI web subscribers at shows non-commercial’s track record of pushing the short side of their collective position to the 50,000-63,000 area. During these periods of short-selling, the market has typically continued lower. As recently as last October, for example, prices bottomed at almost the same time as speculative traders reached their peak short holding of roughly 53,000 contracts.

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