April natural gas futures on Wednesday recorded a new low for the larger down move, but rebounded ahead of the arrival of fresh storage data Thursday to close at $4.559, up 4.3 cents from Tuesday’s finish.

Wednesday’s action in the front-month contract bested Monday’s low of $4.458 by recording a low of $4.450. The last time front-month contract values traded lower was more than three months ago on Dec. 4, 2009 when the January 2010 contract recorded a low of $4.445.

Natural gas traders see prices continuing to grind lower with the winter heating season premium coming out as spring becomes the focus, according to Citi Futures Perspective analyst Tim Evans. He added that updated temperature forecasts that were modestly warmer than on Tuesday for the six- to 10-day and 11- to 15-day periods also contributed to the downward pressure on prices.

Evans also noted that Atlantic hurricane forecasts are beginning to make their debuts, but he is not putting much stock in these early reads just yet. “While AccuWeather has issued an early forecast for an active hurricane season this year, it is still a bit early for the natural gas market to focus on that, as the August-October peak in the hurricane threat is still a bit beyond the future market’s primary horizon,” he said. “We also note that hurricane forecasting skill is not all that robust, this far forward.”

Weather forecasts Wednesday morning continued to favor warming. Commodity Weather Group of Bethesda, MD, in its six- to 10-day outlook said changes in its forecast were “mainly” warmer. “After a big spring-like storm this week and weekend, the cold air following it is not all that strong so numbers were adjusted warmer again,” said Matt Rogers, the firm’s president.

Funds and managed accounts, more interested in trading the directional characteristics of the natural gas futures market rather than offsetting a physical position, recently increased their exposure to the short side. The Commodity Futures Trading Commission reported last Friday that the managed money component of natural gas futures and options open interest as of March 2 increased. In its weekly Commitments of Traders Report managed money at IntercontinentalExchange increased holdings of long contracts (2,500 MMBtu) by 24,006 to 583,905 and shorts rose by 2,921 to 48,935. At the New York Mercantile Exchange long futures and options (10,000 MMBtu) rose by 9,346 to 140,964 and shorts rose by 21,773 to 204,419. After adjusting for contract size, total longs increased by 15,347 (!0,000 MMBtu) contracts and shorts rose by 22,503. For the five trading days ended March 2, April futures fell 10.1 cents to $4.708.

Analysts see the increase in short open interest as part of a larger investment scheme. “It looks to us like at least one large investment bank or fund is long crude oil and short natural gas, and we have seen steady, new buying in oil contracts and selling in natural gas since this new month began,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. Although the recent weakness in natural gas prices certainly can be seen through the prism of moderating weather fundamentals, the entrance of large traders seeking to gain from what they see as a price trend lends an element of skepticism to how long the opposite movement of oil and gas prices can continue, he said. Wall Street traders are notoriously fickle, and the long crude-short natural gas trade could unwind at any time.

“The sudden onset of legitimately warm weather is certainly a good reason for prices to come under selling pressure, but if one looks at oil and gas through the same lens, one cannot help but be struck by the observation that oil prices are getting every bullish break in the book — while natural gas is being penalized for every minor infraction. If oil inventories had been worked off as dramatically as natural gas storage has been this winter, crude would be trading in triple digits now,” said Beutel.

Turning attention to Thursday morning’s natural gas storage report for the week ending March 5, Evans said he is expecting a 96 Bcf draw, while Bentek Energy is expecting a 115 Bcf pull, which would bring inventory levels to 1,622 Bcf. The research firm expects a 74 Bcf draw in the East Region and 35 Bcf and 6 Bcf draws in the Producing and West regions, respectively.

Despite the rapid drawdown in storage of the last two months, Bentek said working gas levels will likely still likely be above the five-year average leaving the withdrawal season. “Five-year average withdrawals for the reminder of the season total 129 Bcf and would result in season-ending inventory levels of 1,493 Bcf, 15 Bcf above the five-year average,” Bentek said.

The number revealed by the Energy Information Administration at 10:30 a.m. EST will be compared to last year’s date-adjusted 111 Bcf draw and the five-year average draw of 107 Bcf.

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