Adding to losses etched in Thursday’s abbreviated session, the natural gas futures market continued lower Friday as buyers appeared content to wait for sub-$5.00 prices before re-entering the market.

However, a wave of end-of-week short-covering dampened the bearish mood and allowed the prompt contract to spend very little time below key support at $5.16. March closed at $5.193, down 4.2 cents for the session but 7.3 cents above its new 10-week low Friday.

According to the Energy Information Administration (EIA), 172 Bcf was pulled from storage during the previous week, dropping supplies to 1,431 Bcf as of Feb. 13. At first glance the number was neutral to bullish as it fell near the top of the 150-178 Bcf range of expectations. However, versus historical withdrawal comparisons of 203 Bcf a year ago and a five-year average of 114 Bcf, the 172 Bcf draw was open to either bullish or bearish interpretation.

What is somewhat less open to interpretation, is the predicted end-of-winter inventory. Barring another blast of arctic air, the general consensus is that the market will begin its injection season this April with a comfortable 1,000 Bcf of gas already in the ground. This compares to the 642 Bcf level a year ago and a five-year average starting point of roughly 1,100 Bcf.

But don’t let a relatively high starting inventory lull you into a sense of security regarding the upcoming injection season, warns a Washington, DC-based broker. “This market has been very lucky the past couple of summers. A combination of the mild temperatures and stagnant economy has allowed the market to build storage back up to the 3,000 Bcf level. What happens if a recovering economy kicks up industrial demand and we get a hot summer?”

And while he believes that scenario will drive higher prices this summer, he looks for further softening between now and the end of March. The buyers are not back in this market yet. They are looking for a “4” following the dollar sign before they jump in, he speculated.

However, he doesn’t see prices plumbing too far below the $5.00 mark. “There are several layers of support in the $4.60-80 area that should prop up the market…If I had to guess, I would say that a low could come at the end of March when the May contract is the prompt month.”

Ironically, the same buyers who are notably on the sidelines and thus indirectly responsible for the lower prices are likely to be the impetus for the early summer rally, the broker continued. “These are the same buyers that waited all of last summer for lower prices. When October rolled around and lower prices had failed to materialize, they were forced to pay up. I don’t think they will make that mistake again.”

In daily technicals, Craig Coberly of GSC Energy in Atlanta sees $5.10 as the pivotal level in April futures. Should that level fail to hold, he looks for a continuation lower to $4.86-94. On the other hand, if the bullish outlook is correct, Coberly looks for a rally away from the $5.10 area to $5.57 and later to $6.00.

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