Like the snowfall piling up in New England, long positions filled the natural gas pit on Thursday as bulls received yet another double-dose of supportive news in the form of fresh weather and storage (162 Bcf withdrawal) reports. By 11 a.m EST the January contract had blasted through the $5.00 mark. With sellers backing away, the prompt contract was able to continue higher in the afternoon to top out at a new 19-month continuation chart high at $5.15. January finished at $5.089, up 38 cents for the session.

According to the Energy Information Administration, working gas in storage declined 162 Bcf to 2,794 Bcf as of Dec. 6. Stocks were 444 Bcf less than at the same time last year and 82 Bcf below the five-year average of 2,876 Bcf. In the East Region, stocks were 115 Bcf below the five-year average following a net withdrawal of 111 Bcf. Stocks in the Producing Region were 21 Bcf below the five-year average of 772 Bcf after a net withdrawal of 43 Bcf. Stocks in the West Region were 54 Bcf above the five-year average after a net drawdown of 8 Bcf.

The large withdrawal came as a surprise to most traders and market-watcher. By exceeding the range of expectations in the 120-158 Bcf area, Thursday’s 162 Bcf report was the third-straight weekly survey to come in either above or at the top end of market expectations. Last Thursday, EIA reported a 91 Bcf withdrawal and a year ago only 16 Bcf was drawn from inventories.

“The [162 Bcf] number was quite supportive, and the market is reacting accordingly,” said Kyle Cooper of whose 148-158 Bcf estimate formed the top end of the market’s expectations. “It shows a real tightness [of supply] out there right now.” While Cooper feels it is unlikely that the market will duplicate this feat in next week’s storage release, he pointed to updated forecasts released Thursday from Salomon Smith Barney meteorologist Jon Davis.

According to Davis, not only will the “December thaw” be less warm than previously thought, it will also not reach all the way to the East Coast. The cold temperatures in the East will moderate, but only climb back to normal, not above-normal as Davis had predicted in a note to customers earlier in the week.

Looking further ahead, Davis calls for a return to below-normal readings for much of the country for the Dec. 22-26 time frame. “If those forecasts are right, then we are [adequately priced] at the $5.00 level,” said Cooper.

However, if ever there was an opportunity for the market to correct, now is the time. Since opening at $4.32 Monday, the January contract has rocketed 66 cents in just over three trading sessions. Even when prices were making their meteoric rise to $10 two years ago, there were opportunities for sellers. For example, spot prices reached the $5.78 level during the week of Oct 13, 2000 only to dip to a $4.38 just three weeks later. Two months after that, prices had more than doubled and producers were selling gas for $10.

As with any market move, however, timing is key and hindsight is 20/20. “It can be a very expensive hobby trying to pick a top in natural gas,” warned Ed Kennedy of Commercial Brokerage Corp. in Miami. “Sure I would look for profit-taking…but only when the fund buying dries up. Monday and Tuesday was short-covering, and [Wednesday] and [Thursday] has been fund buying. If the funds back off, then we could drop 20-30 cents. We could [even] see $4.66, but I don’t think we will see $4.44,” Kennedy said.

Rather than rolling the dice and selling the market outright at these levels, Kennedy might suggest an options strategy to capture a downside move. “You could buy either at the money or in the money puts right now. With implied volatility still below 50%, they are an inexpensive way to take advantage of a sell-off.”

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