The natural gas storage situation went from overweight to obese in the span of one week as the Energy Information Administration (EIA) reported Thursday morning that a mere 38 Bcf was withdrawn from underground stores for the week ended Feb. 3. As it turns out, that was enough to overcome the bullish forecasts for a severe winter storm in the East this weekend, leaving the March natural gas contract to trade down to a new six-month futures low at $7.300 before settling at $7.479, down 25.6 cents from Wednesday.

After March natural gas broke below support at $7.700 in pre-report trading, the minuscule withdrawal — well below most industry expectations — was all natural gas bears needed to validate their direction. March natural gas was trading at $7.550 just prior to the report’s release. When the report revealed a number much smaller than expected, the prompt month dropped another 25 cents in the following minutes to carve out a low at $7.300.

The 2,368 Bcf in storage as of Feb. 3 sets a new record for storage levels following the first report of February. The only year that came close to matching this year was 2002, when working gas in storage stood at 2,332 Bcf as of Feb. 1.

“I was shocked at how little the East region pulled,” said Tom Saal of Commercial Brokerage Corp. in Miami. The East region removed 30 Bcf for the week. “Based off what I have been told, the East had to pull gas out, weather or no weather. However, that is not what the report showed. The market is taking the lower storage number in stride and moving lower.”

With futures breaking through support at $7.70, Saal said some lower support zones now stand out. “This thing is free-falling. Using Market Profile analysis, we had $7.35 and the next level is $7.00, due to the old psychological whole-number tradition. We will see if it gets down there. All the pundits are saying there is no question about it, we’re headed to $6.00, but every time we go a little lower, everyone adds a dollar or two to their downside projections.”

Saal will be among a number of key industry leaders and energy experts looking at all aspects of natural gas supply, demand, prices and risk management strategies at GasMart 2006 in Denver, May 3-5. Featured speakers for the three-day event include: FERC Chairman Joseph T. Kelliher, Questar Chairman Keith Rattie, Kinder Morgan’s Natural Gas Pipelines Group President Scott Parker, Houston Energy Partners Analyst John Olson, and hedgefund MotherRock COO John D’Agostino. For more information, visit https://gasmart.com.

Summing up the storage report’s impact on natural gas futures in short order, Citigroup analyst Kyle Cooper called the 38 Bcf withdrawal “quite bearish.” Cooper’s final estimation of a withdrawal between 38-48 Bcf just barely caught the number and proved to be one of the few to get it right.

The industry’s expectations seemed to gravitate around a withdrawal of 50-60 Bcf. According to a Reuters survey of 29 industry players, natural gas storage was expected to fall by 59 Bcf for the week. Wednesday afternoon’s ICAP-Nymex storage options auction, which allows traders to hedge against or bet on the storage number, zeroed in on a 50 Bcf withdrawal for the week. The 38 Bcf actual withdrawal wasn’t even in the same class with last year’s 178 Bcf pull and the five-year average withdrawal of 158 Bcf.

“If you needed continuing proof that the existing fundamental situation is in great shape, this [report] is it,” said Jay Levine, a broker with enerjay LLC. “Not that that guarantees prices will continue to go lower, or much lower. It’s a bleak picture to be sure — for the bulls — but one we’ve seen before and probably not as bearish as it seems (just as [natural gas] in the teens clearly wasn’t nearly as bullish as it seemed; not that long ago). Typical market exaggeration if you ask me.”

Natural gas storage levels are 437 Bcf higher than last year at this time and 649 Bcf above the five-year average of 1,719 Bcf. The East and West regions withdrew 30 Bcf and 10 Bcf, respectively, but the Producing region actually ended up injecting 2 Bcf for the week.

Looking at the pending cold weather, Saal said forecasters have been preaching cold for a while and now it appears to be here. “They say we are going to be in the 40s for the rest of the week in Miami,” which is pretty chilly for that part of the country. Whether the cold makes a difference remains to be seen. “People change their minds in this market pretty rapidly,” Saal said. “I wouldn’t be surprised if everyone turns bullish if we can pull 200 Bcf out of storage for a couple of weeks, but is it going to happen?”

AccuWeather.com said Thursday morning that a “fast-moving power puncher” of a winter storm will impact the country this weekend from the Tennessee Valley to New England. “An Alberta Clipper that moved out of western Canada into the Midwest is forecast to join forces with energy being carried by the southern branch of the jet stream,” the State College, PA-based forecasting firm said. “The storm will develop over Arkansas on Friday afternoon. By Friday night, the snow will begin in the Tennessee Valley and along the Appalachian spine. On Saturday it will roll through the mid-Atlantic states and by Sunday it will move through New England and out to sea.”

AccuWeather.com Senior Meteorologist Gerald Mohler said the storm has the potential to bring snow from the Great Lakes to Virginia. He added that there will be a large area (most of Kentucky, southern Ohio, central Pennsylvania and the Washington, DC area) that will receive 3-6 inches of snow. The heaviest band of 6-12 inches of snow is forecast to fall in eastern West Virginia, and along the I-95 corridor from just north of Washington, DC, through Philadelphia, New York City and Boston.

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