Despite Tuesday’s large opening gap and 11.8-cent collapse, theMarch contract found support in the high $2.40s yesterday andmanaged a small 1.5-cent gain to end the regular trading day at$2.530. It hit bottom at $2.465 and reached a high for the day of$2.545. April was down 0.3 cents to $2.541, and nearly all of theremaining months were unchanged from the day prior.

Regarding the lack of follow-through on the huge dip Tuesday,one futures broker said current cash prices in the low $2.50s andFebruary’s settlement price put a floor under March. “February wentoff the board at $2.61 and you have to discount the March contractsome,” he noted. He believes March may have found a comfort zone inthe $2.50s. “It looks like people liquidated their positions earlythis time. They are kind of nervous about staying there until thelast day. As they liquidate their positions it may take some of thevolatility out of the market.

“I think we may trade up a bit tomorrow to fill this gap aboveus [set Tuesday morning]. It’s between $2.57 and $2.595. That wouldgive you resistance. Support is at today’s low of $2.465.”

Another relatively large storage withdrawal could provide someadditional support through Friday, he said. The American GasAssociation reported a withdrawal of 136 Bcf, putting storagelevels at 1,268 Bcf or 522 Bcf lower than at the same time lastyear. The withdrawal reported during the same week last year was 97Bcf.

The withdrawal, however, was within expectations, said amarketer. “Generally if the AGA is in line with expectations, youusually don’t get much of a price move because it’s alreadyfactored into the market.”

However, the series of large withdrawals during a relativelywarm February leads John Saucer of Salomon Smith Barney to believethe market holds long-term strength.

The warm weather probably will hold March down throughexpiration, Saucer said. He sees a limit to the downside in thehigh $2.40s. “We made a couple of passes at the $2.40s, and we’vedone not much better than the high $2.40s in terms of lows,” henoted. “This market doesn’t seem to want to cover much new ground.I think there’s potential for some additional weakness going intoexpiration, but I think it’s fairly modest. I don’t think thismarket will come off hard at all.”

Saucer believes demand is deceptively strong right now,production is flat to declining and storage levels are low.”Storage is not only 500 Bcf below a year ago, it’s [more than] 100Bcf below the three-year average, back below the five-year average,and it looks like we’ll be lucky to have 900 Bcf in the ground atthe end of March to start the new injection season,” he said.

“Prices have been in a consolidation phase between $2.45 and$2.70 since mid-January. While at this point we’re certainlytesting the low end of that range — in line with the pull-back incash and the mild weather — I’d point out that in the last sevenof nine years natural gas has traded under $2 in January andcouldn’t do that this year,” said Saucer. “I think there’s probablysome significance to that departure from normal, and it’s probablyrelated to the fact that the overall fundamental picture isconsiderably more constructive than a lot of people would havegiven it credit for coming out of this winter — given what we nowknow about the weather and how mild it was.

“The market has readily absorbed much more imports this yearthan a year ago,” he added. “What you have is a situation wheredemand outside the weather-related realm is quite strong. Even withmild weather this market has been able to pull basically recordfive-year highs in storage withdrawals over the last few weeks.”

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