In three distinct selling waves, natural gas futures plummetedlower yesterday as traders liquidated long positions andestablished fresh shorts amid a bevy of bearish fundamental news.Feeding off losses incurred in the overnight session, the Februarycontract gapped down at the open Wednesday and shuffled lower tothe $7.50 level by 2 p.m. (EST).

Then after traders learned that only 103 Bcf was pulled fromunderground storage facilities, they hit the market with a wave ofselling that propelled the spot contract to its $1.00 limit-downmaximum, halting trading for 15 minutes. After the market reopened,bears remained in control and were successful taking prices another20 cents lower in the last 45 minutes of trading Wednesday. Alltogether the numbers were staggering. The February contract fell$1.194 yesterday or 15% of its value to close at $6.909, its lowestlevel since Dec 1.

According to the American Gas Association, 103 Bcf was withdrawnfrom underground storage facilities last week, bringing totalworking gas levels to 1,459 Bcf or 44% full. Storage now stands 753Bcf below year ago levels and 565 Bcf less than the 5-year average.But despite those bullish historical shortfalls, the report wasimmediately deemed bearish by market watchers as the 103 Bcfwithdrawal fell short, not only of expectations focused on a125-150 Bcf draw, but also against comparisons with last year (110Bcf) and the 5-year average (137 Bcf).

Evoking a Nymex rule set up to arrest trending markets, naturalgas trading was suspended yesterday at 2:10 p.m. (ET) after theFebruary contract traded one-dollar below Tuesday’s settlementprice of $8.103 for five minutes straight. The market reopened at2:25 with new two-dollar limits on either side of $8.103.

For a Houston-based risk manager, the clues to yesterday’s lowstorage pull were evident not in the declining degree days heatingfigures for last week, but rather in the depths in which spot gasprices fell below first of month index levels. Sure the weathermoderated, but that alone does not explain the low storage pulls.”What we have here is a case of utilities buying relatively cheapgas in the spot market rather than pulling gas from the ground.”

He may have a point. Over the past three weeks, degree daysheating for the U.S. as reported by the National Weather Servicehave decreased from 265 to 210 or roughly 20% while storageinjections for the same period have declined from 209 Bcf to 103Bcf or about 50%.

In daily technicals, February has support at the bottom of thechart gap down to $6.46 created on Dec. 4. On the upside, Februaryhas resistance at the bottom of yesterday’s chart gap up to $7.94.

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