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Futures Gain 28 Cents to $7.998 as Options Expire

Natural gas bulls were licking their lips following the long holiday weekend as weather forecasters Monday were calling for a significant dose of cold Canadian air to sweep across the country from west to east this week. Opening higher following the overnight trading Sunday, December natural gas futures on Monday put in a high of $8.025 before settling at $7.998, up 28 cents on the day.

"A brutally cold air mass is on the move, pressing south and east thanks to a dip in the jet stream," said AccuWeather meteorologist Chris Stachelski. That jet stream dip is the culprit of the cold air already being felt, albeit in far away places like Cut Bank, MT. On Sunday the mercury there failed to climb above zero degrees, according to the forecaster. "There is plenty of frigid air as a source to the north, as temperatures [Monday morning] were as cold as nearly 50 degrees below zero in the Yukon Territory of Canada."

He predicted that the arctic air mass will surge southward and eastward behind a cold front charging across the country, and "by Wednesday and Thursday, look for the chill to arrive as far south as Texas. By Friday, a significant drop in temperature will take shape in the Northeast."

Some market experts still see futures as range-bound. "While the reports of colder incoming weather could have influenced the market a little, I think futures have really just been flirting around these levels for the last couple of weeks," said Steve Blair, a broker with Rafferty Technical Research in New York. "Taking into account that it was options expiration day, I think we closed right around $8 Monday because there was a pretty good sized open interest in the $8 strikes. I think the put and call holders were fighting each other on the day and that is why we settled just south of $8."

Looking at the overall natural gas futures market, Blair said he firmly believes futures are still in search of a direction. "I think it comes down to weather," he said. "We will have to see when and if the cold weather comes in...and how long it decides to stay for. Obviously with winter approaching, there is more of a likelihood that the market's direction would be upward. However, from a technical perspective, we still have minor resistance at $8.00, then $8.25. If we get above and settle above $8.40 to $8.60, then we could see this thing go to the next level."

Looking more near term, Blair said he didn't see any fireworks in store for the expiration of December futures Tuesday. "I wouldn't be surprised if it went off the board right around $8, give or take a dime," he said.

Cold air or not, the Canadian air may not arrive in time to have an impact on the following week's storage figures. The National Weather Service (NWS) forecasts below normal accumulations of heating degree days (HDD) for the week ended Dec. 2 in major energy markets. The NWS predicts that New England will "bask" under 137 HDD, or 66 fewer than normal, and the Mid-Atlantic states of New York, New Jersey and Pennsylvania will have to endure just 119 HDD, or 68 fewer than normal.

Natural gas bulls are enjoying support from a somewhat unlikely ally, the falling dollar. The dollar continues to fall against the euro and is at its lowest level since March 2005. Part of the decline is due to anticipation that the Federal Reserve will cut interest rates in the first quarter, and since oil and by extension natural gas are priced in dollars, more dollars -- or dollars per barrel -- are needed to maintain parity with currencies such as the euro.

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