February natural gas put in another low Thursday that had not been seen since Sept. 8, 2009 when October futures were as low as $2.628. The day’s price drivers included the release of storage data by the Energy Information Administration (EIA) that showed a 95 Bcf pull from inventories, well off the seasonal pace but greater than what the market was expecting.

Although the figure was supportive when measured against expectations centered closer to a draw in the mid 80s Bcf area, traders had no difficulty selling the market down. At the close February had fallen 7.7 cents to $2.697 and March had given up 6.6 cents to $2.737. February crude oil dropped $1.77 to $99.10/bbl.

Analysts and traders are looking for any clues that prices may finally halt their incessant slide and at least stabilize. With burdensome storage and mild, unsupportive weather forecasts, technical analysis may be the last hope for those looking for prices to at least stabilize and provide a framework for an eventual advance.

Technicians point to a long-term uptrend line that has been in place for more than 20 years. For years when prices were in double digits, or comfortably nestled at $5 and above, the trend line was so low as to not be of consequence, but now with the market putting in multi-year lows, the long-term trend has become important.

“The trend line this month cuts at $2.606,” said Walter Zimmermann, vice president at United-ICAP. “The problem is that there is no sign of bottoming action and no sign that shorts are about to get spooked even though the market is oversold and bearish sentiment is at an extreme. The history of this [trend] line is pretty consistent. It has never ever been broken even briefly, even intraday.” Zimmermann said “bells would go” off if that trend line were broken.

Should that trend line be decisively broken, the question is, where might it go? Zimmermann is a student of Elliott Wave and retracement techniques and sees a sub-$2 objective.

“If you look at an A, B, C [down, up,down corrective] pattern off the $15.78 high, you went from $15.78 down to $4 and change, and then [it] rallied into the $13 area and then you sold off again. If that is an Elliott Wave A, B, C, with the A leg down equaling the C leg down, that takes the market down to $1.96.

“For those whose exposure to natural gas is more recent and [who] watched natural gas trade beyond $15, saying that it is likely to break $2 is heresy. Prior to 1992 it was always below $2. It has spent a lot of time in that range back in the time when there was too much supply and not enough demand. Back in the 1990s there was the gas bubble, there was too much gas and nowhere to put it and that’s the threat the market sees now with the continued avalanche of shale gas pouring into the market.

“If there is any year in the last 20 capable of breaking that uptrend line, maybe it is this year. There is an excess of gas, there is no winter, and there is excess gas globally as well as domestically. It’s not too difficult imagining closing below that level Friday.”

He said to remember a time with economist Alan Greenspan was citing a “gigantic shortfall of natural gas” and liquefied natural gas (LNG) terminals had to be built to make up for the huge gap between supply and demand because he said, “‘We are going to run out of gas.’ At least he was consistently wrong with every forecast he made. Those like Cheniere [Energy Sabine Pass Liquefaction LLC] and others who constructed LNG terminals are now trying to reverse engineer them so they can export,” Zimmermann said.

Thursday’s 7.7-cent drop posted by the February contract along with Wednesday’s 16.7-cent plunge were widely credited to weather forecasts calling for well-above-normal temperatures throughout the East and Midwest. Thursday’s forecasts called for additional warmth.

WSI Corp. of Andover, MA said in its morning 11- to 15-day outlook, that Thursday’s “forecast is warmer over most of the central and eastern U.S. than it was [Wednesday].” WSI predicts a large dome of above-normal temperatures centered over Missouri and radiating over the entire country from New England to California. Only the state of Washington is expected to be below normal. “With the exception of the northwestern U.S., above- and much-above-normal temperatures are forecast over most of the continental U.S. Anomalies as warm as 8-10 degrees above normal are anticipated over the Midwest.”

Risks to the forecast include “temperatures [trending] even warmer over most of the central and eastern U.S. than currently forecast. All models advertise a zonal polar jet stream over the northern tier of the country and a strengthening western Atlantic ridge will combine to bring warm and dry conditions to most of the country.”

Supply and demand continue to be out of balance as mild weather and abundant production continue to generate growing storage surpluses. As expected, that surplus grew further with the EIA storage data.

Last year at this time a hefty 137 Bcf was pulled to accommodate largely weather-driven requirements and the five-year average stands at 128 Bcf. For the week ended Jan. 6 market analysts were looking for just a fraction of that. Citi Futures Perspective analyst Tim Evans forecast a pull of 72 Bcf and a Reuters survey of 22 traders and analysts resulted in an average 89 Bcf. Industry consultant Bentek Energy utilizing its North American flow model predicted a decrease of 96 Bcf.

Inventories now stand at 3,377 Bcf and are 398 Bcf higher than last year at this time and 491 Bcf above the five-year average of 2,886 Bcf. For the week, the East Region withdrew 76 Bcf and the Producing Region withdrew 16 Bcf, while the West Region dropped 3 Bcf.

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