After opening significantly lower Wednesday morning at $14.900, January natural gas recorded a low on the day of $14.570 before bouncing higher to find resistance at $15.080. Ultimately, the prompt month ended up settling on the day at $14.679, down 69.9 cents from Tuesday’s close.

The down day marked a significant departure from the previous two days, which saw January natural gas climb by a combined $1.066. The slide on Wednesday also had some traders questioning the strength of the market’s commitment to the upside.

“What we have seen recently is a bit of choppiness in this market, which is definitely of interest to us,” said a Washington, DC-based broker. “Maybe people think that the storage withdrawal revealed Thursday isn’t going to be as large as first expected. That could be partially responsible for Wednesday’s drop.”

He pointed out that over the last five days there have been some “very big” daily ranges. “When we get these back and forth days with ranges as high as $1.40, it indicates to me that there is an awful lot of uncertainty,” the broker said. “We are all doing our best trying to figure out what we need to do here. If you have a number of days with small ranges generally trending upward, everyone is sort of in agreement, and it is a question of how many buyers are going to show up today. Under the current market circumstances, people are asking for their hedge position to be removed, to be put back on and so forth. Wide range days really point to a lot of confusion in the market over the direction of the trend.”

The broker said the current up-leg, which has been in effect since Nov. 28, might be ready to take a little bit of a breather here at these prices. “I think we will probably come back down and test our 10-day moving average around $14.250,” he said. “It would not surprise me to see a little more weakness, possibly even a test back down into the mid-$13 area. However, I don’t think it is the end of the bullish nature of the current market, but perhaps a correction is at hand.”

He noted that the key to the whole puzzle remains weather. “The important question is whether or not this weather that has been forecast through the end of December turns out to be as cold as we expect. We also have to see what happens after this current cold pattern. Will we snap back and have a warmer than normal January? I don’t know.”

He added that traders also have to take into account the offline production in the Gulf of Mexico. “I’ve heard that a lot of people believe that the last 1 to 1.5 Bcf/d may be the small production operations that are just going to be written off,” the broker said. “With those, it is a company-by-company decision. A lot of these smaller wells and facilities may never come back. How the market handles that and whether or not it is priced in are other questions that may not be answered until it happens.”

Looking at Thursday morning’s natural gas storage report for the week ended Dec. 9, industry estimates for the withdrawal range from 124 Bcf to 205 Bcf, with a majority of insiders looking for a pull in the 170-190 Bcf range. The consensus of traders is that this week’s natural gas inventory report will have little difficulty blasting through last year’s withdrawal of 65 Bcf and the five-year average pull of 104 Bcf. The report is scheduled to be released by the Energy Information Administration (EIA) at 10:30 a.m. EST Thursday.

The cold weather “should make this week’s inventory numbers rather critical,” said Edward Meir, a commodity analyst at Man Financial. “Any significant surprise could send prices higher, as it would dislodge some of the market complacency associated with current inventory levels.”

Kyle Cooper of Citigroup estimates that this week’s figure will be between 168 and 178 Bcf, but he cautions that current and forecast cold weather patterns Wednesday “are masking a bearish temperature-adjusted supply/demand balance. But until the weather relaxes, prices are unlikely to fall significantly.”

Bentek Energy said it projects a storage withdrawal of 191 Bcf to be reported for the week ending Dec. 9, which would decrease working gas levels to 2,975 Bcf. Wednesday afternoon’s ICAP-Nymex storage options auction, which allows traders to hedge against or bet on the storage number, predicted a 184 Bcf withdrawal for the week.

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