Ending a five-day, one-dollar price spike, natural gas futures filtered lower Tuesday as traders alleviated overbought conditions and hedged against the possibility of a smaller-than-expected storage withdrawal report Thursday. Cash prices and crude oil futures, both of which have been supportive lately, turned lower Tuesday, pulling the natural gas futures market along with it.

Citing moderating temperatures and decreased holiday demand expected next week from industrial customers, a Houston-based marketer was not surprised when the prices of his New York area deliveries tumbled Tuesday. It was that cash market weakness, he continued, that pressured Nymex lower. However, as of Tuesday evening there was still room for futures to fall. At $5.24, the January contract was still about 6 cents above where over-the-counter Henry Hub gas for Thursday was offered last night.

However the spread between December cash and January futures was not the only spread being pushed around Tuesday. Also of interest was the January-February futures spread, which has been a been a battleground for both commercial and local traders. With an 11.8-cent loss, versus only a 10.1-cent decrease for January, the February contract widened its discount yesterday to 6 cents after narrowing to 3 cents at the open Tuesday. Over the past month, the spread has typically traded in the 4-6 cent range but some feel that a continued price spike could lead to a blowout of that basis.

Moderating temperatures in the East Wednesday will likely continue to weigh on gas prices in the near-term, traders agree. That will give the market a chance to continue to unload some of its recent accumulation of long positions, especially those held by local traders. However, the market may not have to go too far down to scare up willing buyers. While the near-term forecasts call for moderating temperatures, the extended forecasts look for a return to seasonal readings in the East and below-normal temps in the West.

In daily technicals, January has notched a low at $5.17 both Monday and Tuesday. More buying is expected there Wednesday. Should that fail to stop a price decline, the market could fall to the psychological floor at $5.00. On the upside, Tuesday’s high at $5.31 forms immediate resistance. A failure to reach that level would make the fourth-straight session featuring lower highs. Baring a dramatically bullish upgrade in weather forecasts Wednesday, the market is expected to consolidate lower ahead of storage data Thursday. Early expectations are centered on a 110-130 Bcf withdrawal. Last week the market was goosed higher by a whopping 162 Bcf withdrawal. A year ago the market experienced a 43 Bcf drawdown.

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