Making a clean break from following the petroleum markets and possibly setting itself up for what is expected to be a bearish storage report Thursday morning, January natural gas futures traded lower on Wednesday.

The move was significant in the fact that it broke a two-day push higher that netted the prompt month 49 cents. After topping out at $7.39 Wednesday, January natural gas retreated to settle at $7.236, down 9.7 cents on the day.

In addition, it was surprising that natural gas fell on a day that January heating oil and January crude recorded gains of 8.39 cents/gallon and $2.37/bbl, respectively.

“What mystifies us is you have the distillate market up 8.39 cents and we are down almost a dime in natural gas,” a Washington, DC-based broker said. He noted that distillates went up on Wednesday because the market expectations for a heating oil build in Wednesday’s inventory reports went unfulfilled. “I think that really did spook the market, but what really gets me is the fact that natural gas went in the opposite direction.”

Despite the bullish inventory reports, the broker still wondered why heating oil rallied so big. “Until today, you were able to buy distillate at a discount to the screen, and of course the Gulf Coast was even cheaper,” he said. “Given that, where do we get this kind of a rally…and more importantly, why didn’t the natural gas participate in it? I have no rational explanation for this.”

As for which way natural gas futures will move next, the broker noted that there is still a huge amount of gas in storage. “We do think that at some point market reality will take over — and maybe that is what we are seeing [Wednesday],” he said. “However, if that is the case, we have to believe that at some point natural gas will bring down the rest of the complex as well.”

Advest Inc.’s Jay Levine called trading on the day “interesting.” He said, “The way I see it, it’s par for the course around here.”

He said most estimates for the EIA storage report on Thursday call for a 65-75 Bcf withdrawal. After the “smoke clears, it’ll be that much more interesting,” Levine said.

Noting that the natural gas futures market could see a 50-cent day Thursday in either direction, Levine said we’ll either see $7.75 or $6.70 by the end of trading Thursday. While he added that the former is probably more likely given the recent rally-mode, he allowed that Wednesday’s poor closing makes him unsure.

With marketwatchers now focusing on the Energy Information Administration’s (EIA) natural gas storage report for the week ended Dec. 10, it appears that the withdrawal consensus has settled in the mid-60s Bcf region.

Pre-auction, the ICAP storage options auction based on the EIA report had set a preliminary level of a 60 Bcf withdrawal. Following Wednesday’s auction, the implied market forecast was moved to a draw of 67 Bcf. This number falls near the consensus estimate compiled by Reuters, which calls for a 65 Bcf pull to be revealed Thursday morning.

Acknowledging that he is on the high side, Levine said he is calling for a 101 Bcf withdrawal.

If ICAP’s implied market forecast and the consensus prove to be close estimates, then Thursday’s storage report will be largely bearish when compared to historical data. Last year’s report for the week revealed a 134 Bcf draw, while the five-year average pull for the week was 111 Bcf.

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