February natural gas futures rose Wednesday as traders covered short positions ahead of the release of government inventory figures. At the close February had risen 10.3 cents to $3.096 and March had gained 10.5 cents to $3.127. February crude oil rose by 26 cents to $103.22/bbl.

Followers of Market Profile note that Wednesday’s trading during floor hours left an untested “value area” at lower prices. Tom Saal, senior vice president at INTL Hencorp Futures in Miami, said “on this trend down, every value area that was untested was above, and now we have one below. That’s a change.”

The relationship of market price to value area is important. In Market Profile methodology untested value areas represent market objectives that are often reached quickly. The release of government storage data is likely to give traders the opportunity to see both value areas hit. Tuesday’s value area in the February contract was between $2.971 and $3.007, and Wednesday’s value area is $3.015 to $3.073. “We are set up for the typical high-volatility Thursday, the EIA [Energy Information Administration] release day, so we’ll probably hit both of them in 30 seconds,” said Saal.

The estimates of Thursday’s government storage report are largely bearish, well below last year’s 135 Bcf withdrawal and a five-year average of 106 Bcf. “I think there will be some selling ahead of the number’s release,” Saal said. “Someone is likely to sell a few hundred or few thousand [contracts] based on anticipation of the number. The number comes out and you get a big move down, but no follow-through. Thus someone is left holding a large short position, but prices don’t move and he says, ‘Holy Moley, I better get out of here’ and prices rise back to unchanged.”

Estimates are more than 20 Bcf less than historical averages. A Reuters survey of 18 analysts revealed an average 82 Bcf with a range of 67 Bcf to 98 Bcf. IAF Advisors in Houston is expecting a pull of 68 Bcf and Bentek Energy is looking for a pull of 72 Bcf.

Bentek sees risk to its forecast as being for a somewhat higher withdrawal. In a report it said that model disagreement combined with a holiday week and directional changes not agreeing across storage facilities bring risk to the forecast. Bentek said it feels comfortable with the 72 Bcf draw projected, but risk to both sides is likely with slightly higher risk for a larger draw. “The large increase in withdrawals from Dominion and TCO as well as larger draws in the sample of depleted fields in the Producing Region support this scenario.”

Commodity Weather Group in its 11- to 15-day forecast shows below-normal temperatures north and east of a broad arc extending from Oregon to northern Michigan to Alabama. “The models shifted stronger with a cold shot in the second half of the six- to 10-day [forecast] for the Midwest, East and South,” said Matt Rogers, president of the firm. The dominating feature of the forecast, however, seems to be uncertainty and variability.

“We continue to be cautious as cold air outbreaks early in a new pattern transition can underperform due to issues like lacking snow cover and more variability,” he said. “The stronger six-[to] 10-day cold push also lingers a bit longer on the East Coast into the early 11-15. The models are definitely variable in the 11-15 window, but issues such as ridging around/over Alaska and at times in the North Atlantic are helping to keep cold air in the mix. We favored the colder European ensembles.”

Analysts viewed Tuesday’s quick rise and subsequent erosion as a temporary market response. “The natural gas market attempted a rally to start off the new year with a current cold snap in the eastern U.S. and a corresponding spike in cash market prices, at least in the pipeline-constrained New York City quotes, making February futures seem cheap,” said Tim Evans of Citi Futures Perspective in New York. “Total’s bid for a 25% share of Chesapeake Energy’s Ohio 619,000 acres of shale gas reserves may have also bumped up market sentiment at the start of the session. However, as the session wore on, the initial enthusiasm passed, and futures finished the day little changed, still assessing whether the $3.00 level is too cheap or still too dear for February average delivery to Henry Hub.”

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