Breaking out of the extremely-tight, 4-cent trading range that corralled prices for much of the session, natural gas futures moved lower Wednesday afternoon on the heels of a disappointing (for bull traders) announcement that only 124 Bcf was pulled from storage last week. The selling pressure was felt immediately after the 2 p.m. EST release and by 2:30 p.m. February had sunk to a new, life-of-contract low at $2.04. A slight up-tick at the closing bell lifted the prompt month to a $2.076 settle, down 3 cents for the session.

According to the American Gas Association, 26 Bcf and 21 Bcf were withdrawn from the Producing Region and the Consuming Region West, respectively, with the Consuming Region East accounting for the remaining 77 Bcf. Although the 124 Bcf withdrawal was greater than the 90 Bcf pull seen at this time last year, it fell short of market estimates centered on a 138-155 Bcf decline. Comparatively, the five-year average withdrawal is a 182 Bcf.

At 73% full, or 2,405 Bcf, storage now stands 1,036 Bcf above year ago levels, down slightly from the peak surplus of 1,127 reached during the last week of December. Versus the five-year average, storage is currently at a 587 Bcf overhang. Last week the release of a 137 Bcf withdrawal prompted a double-digit rally to $2.40.

For Thomas Driscoll of New York-based Lehman Brothers, the 13 Bcf week-on-week decrease in withdrawals is bearish considering the increase in heating degree days for the same period. Looking ahead, he paints a grim outlook for prices. “We believe working gas is on track to end winter at 1,440 Bcf –versus a five-year average of 981 Bcf. This overhang is likely to lead to falling prices over the remainder of the winter. We think that there is a 50-70% chance that gas prices will fall to $1.75-$2.00 over the next four to six weeks,” he said.

However, fresh supply data was not the only bearish factor affecting prices Wednesday. Also of impact was cash market prices, which continued to slide amid relatively mild mid-winter temperatures. NGI’s Henry Hub price averaged $2.11 Wednesday, down 8 cents from Tuesday.

Despite the overwhelmingly price-negative fundamental situation, several traders yesterday took note of the market’s ability not only to resist a move to the $2.00 level, but also to turn higher at the closing bell. At $2.076, February closed 3.6 cents above its low and nearly in the middle of its $2.04-12 trading range. That combined with heavily oversold intra-day technicals and a record-setting speculative short position are reasons to be prepared for a rally, according to Tom Saal of Pioneer Futures in Miami.

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.