February natural gas futures worked lower in the overnight Access trading session to open at $10.285 and continued the down move in Wednesday’s regular session. The contract reached a low of $10.030, technically erasing the original Hurricane Katrina gap on the perpetual chart from Aug. 26 to Aug. 29, which spanned $10.075 to $10.650. February natural gas staged a small rebound in the afternoon to settle at $10.197, down 42.9 cents on the day.

As the afternoon dragged on, the prompt month threatened to trade in the $9s. The last time a prompt month traded below $10 was Aug. 26, 2005, when the September contract closed at $9.792. The $10.197 settle Wednesday was the lowest settle for the February contract since Aug. 18, when the contract closed at $9.971.

“Despite the cooldown this weekend, much of the country is only back to seasonal temperatures, certainly not below normal,” a Washington, DC-based broker said. “On Wednesday, we got through that $10.075 level a couple of times during the session, which is the bottom of the Katrina gap. However, we ended up closing back above. While we closed the gap technically, we didn’t bust through it and settle beneath it, so we didn’t necessarily take it out.”

The broker said the psychology behind Wednesday’s move is interesting. “Traders that were short going into Hurricane Katrina saw their sold futures at $10.075 go all of the way up to $15.780 against them,” he said. “If they managed to hold on all of the way through this and finance all of that, the market is finally back to a level where they can break even. This is why many times when the market comes down to the bottom of a gap, it bounces.”

The broker noted that traders could say they were short through the hurricanes and made a penny or so, not taking into account their cost of money over the last three months. “I don’t know who would have stayed short with a 50% move against them, but the bounce Wednesday afternoon could have been a partial result of that,” he said.

Despite the milestone of closing the gap, the broker said there really wasn’t “much juice” to the day. “There wasn’t a lot of commercial buying coming in Wednesday. I doubt the volume was extraordinarily heavy. We weren’t buying strips of 10 or five,” he said.

Looking ahead, the broker said he didn’t see the market bouncing out of its current slump just yet. “I still think there is some weakness ahead until something changes on the weather picture,” he said.

Traders are expecting a much smaller than average withdrawal in storage for the week ended Dec. 30 when results are revealed Thursday morning. Market experts continue to revise their withdrawal estimates lower for the week, citing unseasonably warm weather and the holidays, which are normally lower demand periods.

Citigroup’s Kyle Cooper recently revised his projection lower from a withdrawal in the mid-50s Bcf range to a withdrawal between 12 and 22 Bcf. “Our final estimation for the EIA report for the week ending December 30 is dramatically different than our initial indication,” he said. “Quite simply, our initial estimation did not properly include a ‘holiday’ effect and then physical data indicated a need for an even greater adjustment to our initial projection.” He noted that a withdrawal in his range would “be by far the smallest withdrawal on record for the last week in December.”

Despite Cooper’s prediction, he allowed that a Bloomberg survey of 11 analysts is looking for an average pull for the week of 66 Bcf. Wednesday afternoon’s ICAP-Nymex storage options auction, which allows traders to hedge against or bet on the storage number, zeroed in on a 33 Bcf withdrawal. The market consensus starting point prior to the auction was a withdrawal of 55 Bcf.

Thursday’s reported storage pull will be compared to last year’s 155 Bcf withdrawal as well as the five-year average pull of 135 Bcf.

In addition to the expected small decrease in storage inventories for last week, market experts warn there could be a number of smaller than average withdrawals to follow due to the recent warming trend. The Weather Channel expected a high Wednesday in Chicago of 45 degrees sliding to 35 degrees by Friday. The average high in Chicago at this time of year is 32 degrees. New York City’s high of 40 degrees on Wednesday is forecast to ease to 39 degrees by Friday. The average seasonal high for New York City is 39 degrees, the forecaster said.

That warming trend is expected to stick around, at least in the near term. The National Weather Service (NWS), in its most recent six-to-10-day forecast, shows above normal temperatures for Jan. 10-14 over a vast majority of the country, with only southern Georgia and Alabama and all of Florida displaying normal temperatures for this time of year. According to the NWS, the only U.S. land to see below normal temperatures for the period will be northern Alaska.

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.