February natural gas prices settled down a bit more than a percent Thursday following a very active trading session in which they dropped down to $3.07 support following the EIA announcement of a smaller than expected storage withdrawal and then rallied into the settle. 

This came with the largest losses at the front of the strip, as later contracts actually settled up slightly on the day. 

The result is that the G/H spread barely ticked down even as there were still decent losses for the prompt month February contract, though the H/J spread ticked down a bit more. 

Earlier in the day prices were driven by the EIA data release, where they announced that last week we withdrew 183 bcf of gas from storage. 

Most analyst expectations were generally clustered around the -200 bcf mark, so prices sold off on this number. However, we were not surprised as our estimate sat at just -186 bcf with production coming back online last week and the previous draw appearing anomalously large. 

Yet even with a slightly bearish miss we still saw the print Thursday as historically tight when weather-adjusted, something we advised subscribers of in our EIA Data Rapid Release with the below chart. 

Now attention turns to next week, where we expect another very large storage withdrawal to be announced that could spook the market. Yet next week temperatures are still looking fairly mild, with recent American GEFS guidance clearly trending warmer in the 4-10 Daytime period (courtesy of the Penn State E-Wall). 

The Climate Prediction Center has taken note as well, with their 8-14 Day forecast again trending warmer. 

The result then is a complex backdrop in the natural gas market where winter storage concerns continue to drive prices higher at the front of the strip as an additional risk premium gets priced in, but bears see just enough warmth in forecasts to think current storage concerns are overblown, especially with production increases. Bulls would counter that into February there remain enough cold risks to make storage relevant now. Accordingly, we continue to expect significant volatility in the market over the coming weeks, and see a number of opportunities to play both flat price and spreads from a weather-driven basis.