Clearly showing the drop-off in demand and the increase in supply from new production, natural gas storage levels in the United States dropped only 195 Bcf for the week ended Jan. 30, which was one of the nation’s coldest weeks this winter. However, traders were actually expecting that only 190 Bcf would be removed for the week, so prices rebounded and ended up closing on the day at $4.642, up 4.5 cents from Wednesday’s regular session finish.

Just prior to the release, March natural gas futures were trading at $4.511, but immediately following the report the prompt-month contract knee-jerked higher to $4.676. The contract reached a high of $4.742 just after 1 p.m. EST before leveling off to close.

Tim Evans, an analyst with Citi Futures Perspective in New York, said the withdrawal was “neutral” and “supportive” at the same time. “The net withdrawal of 195 Bcf was in the midst of the expected range and should have already been discounted into the price,” he said. “The data was still supportive in that it was above the five-year average of 183 Bcf, and the year-on-five-year average surplus is reduced to a slight 17 Bcf. As the data is no surprise, the fight in the market that will ensue now is over whether the upcoming warm spell or the more remote cold in the 11- to 15-day forecast should count for more.”

Going into the storage report, most industry estimates were unusually centralized. A Reuters survey of 23 industry players produced a range of withdrawal expectations from 155 Bcf to 221 Bcf with an average expectation of a 190 Bcf draw while research and analysis firm Bentek Energy said its flow model was also indicating a 190 Bcf pull. While outpacing the five-year average withdrawal for the week, the actual 195 Bcf pull fell well short of the 221 Bcf draw for the year-ago period.

Some market participants were fairly impressed with the size of the storage reduction. “I think it makes sense that we saw a bounce after getting a pretty good withdrawal,” said Ed Kennedy, a broker with Hencorp Becstone Futures LC. “We are getting a bunch of nice draws in a row and the string is expected to continue. We just had the coldest January in 15 years and February looks like it will bring more of the same. A normal February would be colder than last year and it is forecast to be below normal following this little warm-up session this weekend, so we are going to have good withdrawals straight through.”

As for price direction, Kennedy said there is no sound answer. “Rally? Sell-off? It really does not impress me because we are trading within a range between $4.250 and $4.800 and I am not sure that is ready to change anytime soon,” he said. “The numbers are looking pretty good right now. If I am going to inject gas this summer, I’ll hedge $4.600 on the summer strip. That’s a good price. I think we have been seeing some of this already in the market. Because of where we are in the season, towards the lower end of the season I would be starting to accumulate positions for the summer.”

According to the Energy Information Administration, working gas in storage stood at 2,179 Bcf as of Jan. 30. Stocks are 60 Bcf higher than last year at this time and 17 Bcf above the five-year average of 2,162 Bcf. The East region led the way with a 125 Bcf pull from storage while the Producing and West regions removed 50 Bcf and 20 Bcf, respectively.

Healthy weather-driven withdrawals may be taking a temporary timeout in the near future. The National Weather Service predicts that for the week ending Feb.7 the New England-Wisconsin corridor will see HDD anomalies of minus one.

Analysts at United Energy aren’t ready to call a market bottom just yet, although March futures have rallied nicely. “While Wednesday’s reversal strengthens the case for a short-term bottom, the bulls should not be cheering just yet. Based on the last three bear market rest stops, congestion here is likely. The first hurdle for the bulls will be a settlement above $4.808-4.870,” the company said Thursday morning.

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