The groundhog must have chewed a hole into a CNG storagefacility, judging from the massive withdrawal that the American GasAssociation reported last week. At 242 Bcf, the withdrawal ranks asthe third largest since AGA started its survey six years ago. Itwas the largest for the last week in January.

Futures traders certainly anticipated it, however. The Marchfutures contract was pushed above key resistance during accesstrading Tuesday evening and gapped 2.5 cents higher at the openingbell yesterday to $2.770. March quickly reached its $2.780 high forthe day, and the opening gap was filled as traders tested a $2.700low several times. March ended the day up 6 cents at $2.759. Volumewas moderate at an estimated 71,550 contracts.

The major storage withdrawal confirmed what many observers hadexpected. Frigid temperatures and record high demand on numerousLDC systems in the Northeast over the past two weeks forceddistributors to call on every last molecule of deliverable gas theycould find. However, few observers anticipated such a largewithdrawal. An average withdrawal for the last week of January overthe past six years has been 150 Bcf.

Working gas levels fell to 1,775 Bcf, or 55% full, and stand at264 Bcf less than at the same time last year. Storage levels stillare 174 Bcf higher than the six-year average.

“The market is still looking perky,” noted Tim Evans of ThompsonGlobal Markets. “This withdraw certainly justifies the perkiness.The problem, or the question, I guess, is that the AGA data islooking in the rear-view mirror, but if you look out the windshieldit’s less clear where this market is likely to head next. That’swhy in Access trading we’re seeing the market bounce around butremain unchanged.

“It’s a big storage number, bigger than the expected 210-230Bcf,” said Evans, “and probably gives the market justification toprobe the upside a little further in the short-term.. If you wantto know where Murphy’s Law says where this market is going to go,it is going to about $2.90 or $2.91, hit a brick wall and will thenfall apart. From there it’s probably going back to $2.50 maybelower.”

Evans pointed to short-term weather being favorable forcontinued price increases. The National Weather Services’ six- to10-day forecast released yesterday calls for below normaltemperatures over the entire East Coast, with normal temperaturesexpected to cover an area from the Great Lakes to the Gulf ofMexico as well as the Pacific region. The report is mixed, however,because above normal temperatures are forecast for the UpperMidwest, the Midcontinent and the Rockies.

The longer-term issue for Evans is the fact that gas prices mayhave room to slide given the significant premium compared to wherethey were last year. “Even though we have a nice 264 Bcf [storage]deficit to where we were at this time last year, we’ve also got abig price premium to where we were last year,” he said. “Last yearwe spent the entire month of February under $1.90. You can figurethe premium is at least 86 cents and expanding. The longer termissue is going to be have we ratcheted the prices up to a levelthat are not really sustainable given [spring approaching].”

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