The natural gas futures market moved higher for the second-straight session Wednesday as traders looked past warming temperatures in the eastern half of the country and focused on increased violence in the Middle East and surging crude oil prices. The February contract closed up 6.1 cents at $6.402 on its first day of trading as the prompt month. January expired Tuesday at $6.213.

After tumbling lower most of last week, natural gas futures kicked off this week by dropping 50 cents in a dramatic sell-off that produced a sizable gap lower on the daily chart. However, on Tuesday the market stabilized and traders now question whether the trend in the short run may be about to change. “I have been trying to pick a bottom for the past couple weeks,” said local trader Eric Bolling. “Although I am now flat heading into the weekend, I would not be surprised to see a little rally here.”

Bolling admits that it is difficult to rationalize an up move with temperatures moderating and considering the plentiful levels of gas in underground storage. “But those factors didn’t seem to matter when prices were at $8-9 in October and November,” he noted. “We’re not going to run out of gas, sure… But it doesn’t mean we aren’t going to have some sort of [supply-demand tightness] somewhere down the road.”

The Energy Information Administration will give its weekly update on the level of gas in storage at 10:30 a.m. EST Thursday, and the market is bracing for the report to feature a large withdrawal. Market expectations are centered on a net draw of 150-200 Bcf, which would outdistance last week’s 123 Bcf pull, the year ago amount of 80 Bcf as well as the five-year average takeaway of 143 Bcf.

However, even if the market receives the large withdrawal it is seeking, there is still no clear fundamental reason for prices to go higher. At 3,027 Bcf as of Dec. 17, gas in storage is 328 Bcf above the comparable week last year and nearly 400 Bcf above the five year average inventory level at the end of December. Add to that the potential that the latest surge of moderate temperatures will equate to a relatively smallish draw when the EIA makes its report in two weeks and you have the recipe for lower prices, market-watchers agree.

But the weather will remain key, noted Bolling. “We have all the bearish information in the market right now and we did not move lower [Tuesday] or [Wednesday]. I am not suggesting we are headed back to $9.20, but if we get some supportive weather forecasts, this thing could move 10% higher without too much trouble.”

On the technical side of the market, Bolling watches the March-April spread for price direction. Specifically, he notes that when that spread is compressed, like it is now (at just 23 cents), the market in general is prime for a move higher. Conversely, Bolling notes that when that spread is wide, like it was a year ago at this time (at $1.20 on Jan. 6), the market is susceptible to a sell-off.

Natural gas futures close at 1 p.m. EST Thursday ahead of the holiday weekend.

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