January natural gas advanced Thursday as traders anticipating a further increase in gas storage had to scramble to cover short positions when the government announced an inventory decline. January gained 9.8 cents to $3.648, and February posted a gain of 9.7 cents to $3.675. January crude oil slipped 16 cents to $100.20/bbl.

The 10:30 a.m. EST release of inventory data by the Energy Information Administration (EIA) had many analysts scratching their heads as the 1 Bcf draw was far less than the approximate 9 Bcf build most had been expecting. The miss was especially galling since it followed last week’s pre-holiday gas storage report that also caught many analysts off guard. For the week ended Nov. 18 consensus estimates of the EIA report were for a 19 Bcf build, but the actual number came in at a lean 9 Bcf. For the week ended Nov. 25, Citi Futures Perspective analyst Tim Evans had predicted an increase of 8 Bcf, and a Reuters poll of 25 analysts revealed a sample mean of 9 Bcf with a range of 2-21 Bcf. Industry consultant Bentek Energy calculated a 12 Bcf injection.

“Everybody is shaking their heads, and it’s getting kind of silly,” said John Sodergreen, publisher of Energy Metro Desk. “It looks as though there needs to be a rethinking of how this early winter/shoulder period is modeled. Supply-demand flow models just don’t cut it anymore, and fundamental drivers aren’t acting like fundamental drivers. We are seeing a lot of less economic builds and draws from different companies regardless of price. There are a lot of inputs that don’t go along with a lot of logic.

“This may show that the [data collection and data reporting] system is broken. When the best guys in the business are off by 10 Bcf three weeks in a row, it’s not them; it’s the process.”

The miss by analysts notwithstanding, bears are still pleased that inventories stand just 1 Bcf shy of last week’s 3,852 Bcf. In addition, the historical comparisons widened with the 1 Bcf pull far less than last year’s 21 Bcf withdrawal and the five-year average of a 29 Bcf decline.

Others less worried about the miss see changes in the overall supply-demand picture. “The net withdrawal of 1 Bcf was supportive relative to market expectations and suggests at least some minor tightening of the background supply-demand balance relative to recent flows,” said Evans. “We’re not sure whether it was a shortfall on the demand side or perhaps a demand pickup, but it would represent constructive progress in either case. There could even be some coal-to-gas switching in the background here as cash prices last week were definitely cheap enough to attract some interest from utilities.”

Longer term, analysts anticipating seasonally higher prices are doing some serious rethinking. Often sophisticated trading rules and market analogs work only until they don’t. A Chicago banker said he had noticed a pattern where “we don’t have a second winter in a row where the winter prices settle below the prior injection season’s prices. That’s never happened two winters in a row. There’s still time [this season], but if we don’t see something severe and soon, that prediction is going out the window.”

In order to make a call on the market’s next big move, technical analysts want to see a break higher or lower. “Bulls need a decisive close above $3.830 to further validate the case for bottoming action. Bears need a break below $3.361 to indicate lower lows are still ahead,” said Brian LaRose, market analyst at United-ICAP. “Clear $3.830 and a correction of the entire $4.983-3.285 advance would be expected at minimum. Sink below $3.361 and a more substantial test of the $3.200-2.956 support zone would be anticipated. Patience is suggested.”

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.