Few can deny that the two biggest factors influencing prices inthe volatile natural gas futures arena are storage and weather.Accordingly, a combination of record cold temperatures andlarger-than-expected storage withdrawals through November andDecember caused natural gas prices to more than double, leavingregulators stunned and sending buyer to the poor house. And whileit is doubtful that natural gas prices will return the ol’two-dollar days anytime soon, the futures market did take solid ahit yesterday and yes, storage and weather were to blame.

For the first time in recent history both the weekly storagereport and the intermediate term weather outlook were solidlybearish yesterday, and the market reacted accordingly as priceswere flushed lower in a selling free-for-all late yesterdayafternoon and evening. The February contract was the hardest hit,tumbling 69.1 cents to close at $9.128 during the regularopen-outcry session. The selling continued into the overnightaccess session, however, and by 7:00 p.m. (EST) the prompt monthhad slipped another 18.8 cents to $8.94.

According the American Gas Association 167 Bcf was pulled fromunderground storage facilities last week, decreasing total workinggas levels to 1,562 Bcf or 47% full. Storage now stands 760 Bcf or33% less than year ago levels. Although the withdrawal eclipsedlast year’s 115 Bcf pull, it was deemed bearish as it fell near thebottom end of the market’s expectations.

However, not everyone was surprised by yesterday’s storagefigure. For Tom Saal of Miami-based Pioneer Futures the withdrawalwas, if anything a little on the high side compared with his 152Bcf withdrawal prediction. “This market has been in backwardationfor some time now with prompt cash trading at a hefty premium tofutures, but last week we began to see that spread narrow somewhat.The narrower that spread becomes, the less incentive there is topull heavily from storage… Wait until next week’s storage figure.Based on the convergence we have seen between cash and futures, Iexpect next week’s withdrawal will be less than this one,” he said.

He may have a point, the cash futures spread averaged a whopping70 cents during the week ending Dec. 29 that a record (for themonth of December) 209 Bcf was pulled from the ground. Last week,however, that spread compressed to just 48 cents for Friday’s gasflow.

However, storage was not the only factor pressuring futureslower yesterday. Also of impact were weather forecasts thatcontinue to flag the Northeast quadrant of the country withabove-normal temperatures for the Jan. 15-19 period.

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