With its traders still feeling the effects of Thursday’s unsupportive storage report, the natural gas futures market sifted lower Friday afternoon to conclude a relatively quiet week. The March contract completed the session at $6.096, down 5.3 cents for the session and 16.3 cents for the week.

According to the Energy Information Administration (EIA), storage levels fell to 2,082 Bcf on Jan. 28, down 188 Bcf for the week. Versus nearly every measuring stick, the withdrawal was bearish, as it fell short of last year’s 224 Bcf draw and the previous week’s 230 Bcf pull. Market estimates were focused on a much larger number. In fact, 80% of analysts and market watchers surveyed were looking for a 200-230 Bcf draw.

Friday’s relatively light trading activity gave those very same analysts time to consider how their estimates could have been so wrong. Several of them were quick to point to the hefty 230 Bcf pull logged in the previous week as a reason for their sizable estimates ahead of last week’s release. “By far the most important factor has to do with the difference in locations in which the cold weather was concentrated [two weeks ago] compared to the [previous week],” said a Virginia-based observer.

He noted that during the week ending Jan. 21, the coldest weather was in the Midwest, and in the week ending Jan. 28 it was not nearly as cold in the Midwest, but it was quite a bit colder in the Northeast — particularly in the Mid-Atlantic Region and to a lesser extent New England. The industry in January of 2004 experienced two very cold weeks and it became apparent that “very cold weather in the Northeast doesn’t necessarily have the same impact as cold weather in the Midwest.” Thus, if adjustments were not made for the precise location of the cold, errors in withdrawal estimates can occur.

However, other market-watchers pointed to an “averaging” effect to explain the large, 230 Bcf withdrawal released two weeks ago followed by a small 188 Bcf takeaway featured in last week’s report. “We were low [the week prior], high [last] week,” noted Kyle Cooper of Citigroup in Houston. “Will there be a revision? We don’t think so. Rather, [last] week seems to have “corrected” the withdrawal of 230 Bcf from the prior week. If, for instance, last week was a 215 Bcf withdrawal and this week was a 203 Bcf drop, these reports would easily fit within an expected error from the base models.”

Looking ahead, Cooper is applying this “averaging theory” in coming up with his 155-165 Bcf withdrawal range prediction for this Thursday’s EIA report. “Once all the data is acquired early [this] week, a more definitive analysis will be released and the subsequent expectations for [this] week’s report. If the ‘averaging’ theory is true, the supply/demand balance is considered neutral to slightly bullish,” Cooper wrote in a note to customers Friday.

In daily technicals, last week’s downturn has at least one analyst rethinking his bullish view. “Trading below $5.90 would be the first high probability warning sign that the bullish intermediate and long-term outlooks were incorrect,” noted Craig Coberly of GSC Energy in Atlanta. “However, $5.77 (basis March) is still the ‘must hold’ level for the bullish case. In other words, as long as prices remain above $5.77, a bullish outcome is most probable,” he wrote in a note to customers Friday.

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