After shifting higher and lower in the first 30 minutes of trading Wednesday, natural gas futures were nearly unchanged at the close following the announcement that 112 Bcf was pulled from underground storage facilities last week. March settled at $2.385, down 1.2 cents for the day, but still well-within striking distance of its 6-week high notched yesterday at $2.43.

According to the American Gas Association, 23 Bcf and 8 Bcf were withdrawn from the Producing Region and the Consuming Region West respectively, with the Consuming Region East accounting for the remaining 81 Bcf. The 112 Bcf net decrease was neutral to bearish as it fell near the bottom end of expectations in the 110-130 Bcf area.

Last year at this time, the market withdrew 81 Bcf, but working gas levels were at 960 Bcf, or less than half the 1,944 Bcf held in the ground currently. Storage levels currently are 610 Bcf more than the five-year average. Last Wednesday, the release of a sizeable 156 Bcf withdrawal figure spawned surprising selling that took the March contract down to a $2.155 low on Friday afternoon. Since that time, however, the market has rebounded as non-commercial speculators have raced to cover short positions amassed on the nine-month run down to the $1.76 prompt low in September.

Given the 112 Bcf withdrawal, Thomas Driscoll of Lehman Brothers forecasts an end-of-season storage level of 1,375-1,425 Bcf, which would be about double the 705 Bcf ending inventory from last year’s withdrawal season. Based on heating degree day forecasts, which suggest it is warmer this week than it usually is at this time of year, Driscoll estimates next week’s storage report will show a 105 Bcf withdrawal. Last year at this time the AGA reported a 101 Bcf drawdown. “The weather for the season to date has been 20.5% warmer than last year and 16.4% warmer than normal. We estimate that the weather has decreased heating demand by 665 Bcf versus normal and 876 Bcf versus a year ago.”

For Jay Levine of Advest Inc., the small storage report was surprising (he was calling for a 137 Bcf draw). What was not surprising to him, however, was the market’s ability to withstand another downdraft. “There are several prominent industry meteorologists calling for an arctic cold front to move into the eastern U.S. by the end of the month. Winter is not over yet and needless to say this is a weather-driven market. Add to that the improving technical situation we find ourselves in, and this market is friendly. I would not say bullish quite yet, but certainly friendly.”

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