Natural gas futures reached new three-week lows Thursday morning on the surprising news that 188 Bcf was pulled from underground storage last week, well below consensus estimates focused on a 200-230 Bcf draw. The March contract was dealt the biggest blow by the news, dropping 22.7 cents for the session to finish at $6.149.

According to the Energy Information Administration (EIA), storage levels fell to 2,082 Bcf on Jan. 28, down 188 Bcf for the week. Versus nearly every measuring stick, the withdrawal was bearish as it fell short of last year’s 224 Bcf draw and last week’s 230 Bcf pull. Market estimates were focused on a much larger number. In fact, 80% of analysts and market watchers surveyed were looking for a 200-230 Bcf draw.

Meanwhile, the ICAP-Nymex storage auction, which allows people to hedge their exposure to the storage report, revealed an implied market forecast for a 212.6 Bcf withdrawal, 25 Bcf more than the subsequent withdrawal released by the EIA.

Citing the ICAP figure’s track record for being a very good indicator for the actual EIA report, market-watchers Thursday could only wonder if the EIA would again be issuing a correction. In fact, on the only other occasion the ICAP number diverged from the EIA figure by such a large amount was in November 2004, when EIA released an erroneous 49 Bcf withdrawal — 34 Bcf higher than the ICAP number. The EIA report was later corrected to show a 17 Bcf withdrawal, just 2 Bcf off the ICAP figure of 14.95 Bcf.

The EIA will accept comments through Feb. 7 on proposed changes to its revision policy. And until such time as a change in that revision policy has been made public, the EIA will not announce a revision until the next weekly storage report is released (see Daily GPI, Jan. 10).

One leading analyst said the “thin,” 188 Bcf draw only served to reinforce his bearish view. “What’s happening in natural gas is that people are realizing that unless we have a record cold February and March, this market is going to end the withdrawal cycle with a record level of gas in storage,” said Ashmead Pringle of GSC Energy.

If the heavy burden of a looming storage overhang is not enough to bring down prices, Pringle warned that the cash market could also take a beating as LDCs decide to eschew gas purchases and use their storage reserves. “At some point here the LDCs are going to start viewing their inventories as half full and not half empty. They will start drawing down their storage rather than buying gas in the spot market.”

Other market-watchers agreed. “The market certainly reacted appropriately,” noted Steve Blair of New York-based Rafferty Technical Research. “We were looking for a number above 200 Bcf — possibly in the [210s].” Although it was not extremely cold last week in the Northeast, people were bracing for a large withdrawal after the 230 Bcf pull of the week prior, Blair said.

In daily technicals, he sees a slightly downward bias in a market that remains range bound. Specifically, Blair targets support at $5.90 and resistance at $6.60. Pringle, meanwhile, sees support at $5.80. He said the technical momentum indicator “Stochastics” has turned lower, suggesting weaker prices. “We have to remember that with the 12-month strip at $6.60, prices are very high historically… We could lose a dollar and still be at a high price level.”

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