Natural gas futures on Thursday continued to trade at the elevated price levels last seen post-Hurricane Katrina as traders and market-watchers debated whether fundamentals, the influx of monies into commodities or sympathy with record crude prices, is to blame. April natural gas put in a new high for the move up at $9.815 before settling at $9.742, nearly unchanged from Wednesday’s finish.

Coming in slightly below most industry estimates but still above historical comparisons, the Energy Information Administration (EIA) reported Thursday morning that 135 Bcf was withdrawn from underground stores for the week ended Feb. 29. Following the report, near-month natural gas futures inched higher.

After trading higher in overnight action to build on Wednesday’s regular session gains, April gas futures opened Thursday’s regular session at $9.780 before trickling lower in the minutes leading up to the 10:30 a.m. EST storage report. The contract recorded a $9.650 low as the report was released but rebounded from there.

Many were questioning whether the well-publicized investment switch from equities into commodities was responsible for running prices higher (see Daily GPI, March 6). “With this market moving higher in the fashion it has been, there is likely a good deal of new money coming in,” said Tom Saal of Commercial Brokerage Corp. in Miami. “We had an initial sell-off on the storage report, but it was not sustained and now we are higher again.” Looking to the upside, Saal noted that there are not a lot of chart numbers in this area besides $10.

Commenting on the market’s surprising run higher, Saal said, “I have been surprised for about the last dollar. Once you start getting into this pricing area historically, it is pretty difficult to predict the next move. With the way things have been going, we could definitely go higher. You really can’t rule anything out at this point.”

Citigroup analyst Tim Evans noted that while the withdrawal was mostly inline with expectations, just knowing the number takes care of the unknown. “The 135 Bcf net withdrawal was below the midpoint of the range of expectations but was still supportive relative to the 111 Bcf five-year average figure,” he said. “We don’t see this number as changing many opinions on the larger direction of the market. Knowing the figure will free up the flow of trading, though, with the uncertainty over the outcome now removed.”

Going into the report the industry appeared to be looking for a withdrawal closer to 142 Bcf. A Reuters survey of 20 industry players expected a 141 Bcf withdrawal, while Golden, CO-based Bentek Energy said its flow model indicated a 137 Bcf draw. In addition to coming in above the five-year average, the actual 135 Bcf pull also dwarfed the 99 Bcf date-adjusted withdrawal from last year.

As of Feb. 29, working gas in storage stood at 1,484 Bcf, according to EIA estimates. Stocks are now 169 Bcf less than last year at this time but 63 Bcf above the five-year average of 1,421 Bcf. The East region withdrew 92 Bcf for the week and the Producing and West regions removed 36 Bcf and 7 Bcf, respectively.

The fundamentalists would argue that much of the recent rise in natural gas prices is due to colder weather reducing supplies. Government estimates do show a significantly lower season-ending supply than last year, but others see the natural gas market as being led by other nonfundamental factors. The EIA estimates March 31 ending supplies of working gas at 1,334 Bcf, a sharp drop from March 2007 when 1,603 Bcf remained in inventory. However, traders largely see last year’s inventory level as an anomaly.

According to the figures of one New York analyst prior to Thursday’s storage report, natural gas storage is down 114 Bcf from a year earlier, and prices are $2.50/MMBtu higher, but “the supply-demand details don’t support such a premium.”

“Currently we are producing 3.78 Bcf per day more gas in December of 2007 than December 2006 and during each month of 2007 more gas was produced than during the same month of 2006. Production in 2007 was up 3.26%,” he said. He conceded that imports of liquefied natural gas were down, but imports from Canada were higher in spite of all the gas required for tar sands development.

Natural gas production is up, and imports are generally higher. “Gulf of Mexico production is rising. Pre-Katrina production was 10.3 Bcf/d and now it is 8.2 Bcf/d, up 0.75 Bcf/d from November 2007, and up 0.6 Bcf/d from December of 2006. It is recovering. I think the gains in natural gas are due to crude oil,” he said.

For its part, April crude notched another record high and record settle on Thursday. The contract settled at the day’s high of $105.47, up 95 cents on the day. Crude futures’ current price level is approximately $45/bbl higher than it was during this time last year.

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