Bulls continued their New Year’s celebration Tuesday at Nymex as the coldest weather of the season buoyed natural gas futures prices to levels only registered on one other occasion in the last 10 months. However, similar to Monday’s price action, the market could not hold onto its early-session highs and prices eased during the afternoon Tuesday.

The February contract closed at $7.082, up 25.5 cents for the session but down 27.1 cents from its spike high achieved early Tuesday in the computer-only Access session. Volume in the gas pit remained weak again Tuesday, with an estimated 53,310 contracts changing hands.

Private weather forecasters had been calling for the current spate of cold weather as far back as the middle of December, which many believe was the only thing keeping prices from falling over the holiday weeks at the end of the year. But prices not falling was not enough and traders were quick to price in the latest round of weather forecasts Monday and Tuesday.

After some very chilly overnight readings, temperatures in the Northeast will be some 10 to 15 degrees below early January norms, the National Weather Service said. For northern Maine, that will translate into mercury readings no higher than the single digits. The cold air will extend to the south as well with highs only reaching the 30s in parts of Virginia and the 40s in Atlanta.

Cash prices responded accordingly to these forecasts Tuesday and helped to ratify the gains in the futures market. NGI‘s Henry Hub spot price advanced 78 cents to nearly match the February contract at $7.04. Northeast prices were also indicative of the weather, with New York deliveries on Texas Eastern topping the $9.00 level on some trades for gas day Wednesday.

Looking ahead, it appears that the chilly temps are here to stay. “Overall, we are probably looking at some of the coldest 10-day periods down the road here since the winter of 1996 for areas east of the Rockies,” noted AccuWeather senior meteorologist Joe Bastardi in an interview with NGI Tuesday. Specifically, he looks for temperatures to average 2-4 degrees below normal for most of the eastern half of the country, with the greatest deviation (5-6 degrees below normal) on the west slopes of the Appalachian, the Ohio Valley, the Great Lakes and all of the way down to Florida (see related story this issue).

However, in order for prices to continue higher, traders are going to need to get past some potentially bearish storage data set to be released Thursday. Expectations call for a withdrawal in the 56-90 Bcf range, which would likely fall short of the 86 Bcf takeaway seen a year ago, as well as the 148 Bcf five-year average.

Despite the likelihood of an unsupportive storage figure, Tim Evans of IFR Pegasus in New York remains bullish. “Given the choice between bearish storage data and bullish weather, we think the futures will opt to look forward, with help making up its mind from a firm or rising cash market,” he wrote in a note to clients Tuesday.

In daily technicals, Evans targets resistance at the highs notched back on Dec. 10 by the January and February contracts at $7.55 and $7.40 respectively. Beyond those levels, potential selling awaits at the $7.90-8.10 range, he continued, hedging that a rise to that level would depend more on the persistence of the cold rather than a predetermined technical objective. On the downside, support is clustered in the $6.95-7.00 area.

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