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Futures Fail at $9.30 Again, But Traders Still See Higher Prices

Following Monday's trading blueprint, March natural gas futures paid a second visit to the $9.300 price level before being rebuffed once again. The prompt-month contract traded between $9.115 and $9.305 before closing out Tuesday at $9.206, up 2 cents on the day.

Over the last few weeks traders have noted that domestic and global indicators have started to align behind the bullish case. "Some firms are reducing their end-of-winter storage projections by around 100 Bcf, so I think that is starting to filter through the market along with everything else," said a Washington, DC-based broker. "The huge supply and storage overage is not there anymore. We've also had nuclear outages, global demand for LNG pulling shipments away from the United States, colder temperatures and a reduction in Canadian supply as a result of the Canadian government's actions as well as the strong Canadian dollar. So there are a number of things that are keeping us propped up here."

Despite the resistance at $9.300 over the last two sessions, the broker said his indicators don't point to it putting up much more of a fight. "We have this wave of money rolling into commodities with the belief that all of the Fed's actions and the actions of everyone invested in the financial assets world will save Humpty Dumpty. It is basically called 'print money.' Look at gold, look at oil, look at any grain or metal. They are all going through the roof price-wise because in tough times physical assets get bid up."

Other market experts also see more room to roam to the upside in natural gas futures. "Natural gas futures are in general at a full cry," said an East Coast broker. "We are still taking the view that gas is in a rally phase. We are targeting $9.800. As to why that is the case, I wish I could give you a better story. We are certainly getting some weather that we did not have before and I think that is what we are seeing with this strength in futures."

Most market participants agree that cooler-than-normal temperature patterns in major energy markets and an eroding supply surplus are dominating price direction right now. Traders see late-season cold reducing what was thought to be a stout supply surplus. A top trader said the way temperature patterns are unfolding through the end of February, it may be cold enough to lower supply levels when compared to seasonal averages.

"Some private forecasts are leaning further in favor of a colder-than-normal March in conjunction with a large snow cover across the northern portion of the country," said Jim Ritterbusch of Ritterbusch and Associates. He added that although March futures staged a late-session tumble Monday, "this market still appears to possess enough bullish fundamental underpinnings to make another run back up into the $9.30-9.35 zone."

The Northeast and Midwest are in for some late-season cold and snow. "A wintry mess is on its way to the Northeast for the next couple of days, especially in the interior," said Mark Avery, meteorologist with Weather.com. He added that much cooler temperatures return Wednesday, with highs ranging from the teens near the Great Lakes to the 40s around Chesapeake Bay. The Midwest is also in the storm's cross hairs. According to Avery, the Midwest east of the Mississippi River is also in for a pounding. "Highs [Wednesday] will range from the teens in Upper Michigan, northern Lower Michigan and northeastern North Dakota to the 60s in southwestern Kansas."

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