Putting aside for awhile the fact that there is 1.1 Tcf more gas in storage than at the same time last year, gas futures traders instead apparently focused on the large 190 Bcf withdrawal from storage last week that the American Gas Association reported on Wednesday. February futures prices were up in the high $2.20s during almost the entire regular trading session on Thursday before taking a sharp dive back into the high teens after 2 p.m. February ended the day down 4.3 cents at $2.185 just above its low of $2.18 and well below its high of $2.30.

“Warmer than normal temperatures for this week appear to have been priced in [already] with some additional price recovery possible on the inevitable cooling trend that will follow,” Tim Evans of IFR Pegasus said before the big afternoon sell-off. “The West is forecast to see below normal readings next week, with normal temperatures expected in the Midwest and Northeast. With storage at such a high level, the market may have the option of walking, rather than running to the upside, but with a heavy load of speculative shorts present here, short covering could become a strong factor over the next week or two.”

Evans said $2.30 looks like the critical threshold of resistance with gains past that level putting the market in a better position to reach the $2.35 peak from Monday. The next level of resistance would be in the $2.40-43 area with the ultimate target of re testing $2.58-$2.63. On the downside, he sees support at Wednesday’s $2.14 low, which he said would be a candidate for an interim trading bottom. “Were it to give way, however, we’d look for a test of the $2.00 psychological support of the $1.76 spot low from last September as longer-term targets.”

Given the late afternoon sell-off and the close near the daily low, the downside appears more likely, said Salomon Smith Barney’s Kyle Cooper. “It’s still an inventory situation, and with the amount of inventory we have in excess of last year, it’s still a bearish scenario. Chicago is 10 degrees above normal and expected to be in the mid 50s by the weekend, and Houston is 75 degrees today. Overall, this week we just don’t have a whole lot of demand. Until we get colder weather and reduce the surplus, we’re going to be in a defensive-type market.”

Cooper expects to see prices below $2 if the warmer weather continues, but the National Weather Service’s six- to 10-day outlook calls for below normal temperatures across the entire country except for the upper Plains states and New England. The eight- to 14-day outlook shows below normal temperatures in the West, Midwest and Northeast, but normal temperatures elsewhere.

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