January natural gas futures were able to regain some of Monday’s 11.3-cent loss in Tuesday trading, which was largely devoid of meaningful direction. With little in the way of fresh news to motivate traders, attention turned to the more distant portions of the price curve where longer-term opportunities may lurk. At the close of trading January futures rose 4.6 cents to $5.715 and February added 6.0 cents to $5.712. February crude oil gained 68 cents to $74.40/bbl.

“I think for now $5.50 is going to hold. You are looking at extremely light trading, and if anything that will hold, but traders are taking a hard look at some of the more deferred spread contracts,” said John Woods, senior trader with the MacNamara Group in New York.

“The April-October spread looks pretty cheap at just under 37 cents, and some guys are talking about buying that spread [the simultaneous purchase of October and sale of April]. The risk-reward looks pretty good because that could shoot out to 60 cents, and if it contracts to 28 or 29 cents, you just bail out.” He added that for the spread to contract to 28 or 29 cents there would have to be a sizeable rally with April gaining 9 cents relative to October. “It just doesn’t look like that is going to happen,” he said.

Longer term, analysts see holiday-period trading as a “tough call,” but once the first of the year rolls around, weather reports alone may not be sufficient motivation for the bulls to resume their run. “After the first of the year even if we get cold weather the market is in the ‘realization stage’ where cold temperatures won’t pack the punch they did in December,” said Jim Ritterbusch of Ritterbusch and Associates. He added that at that point storage would come into sharper focus and “maybe we can take the market back down, but we won’t see $4.50 again for the season.”

The National Weather Service (NWS) forecasts that expected heating requirements in major energy markets for the holiday week will be on par with the most recent week’s blizzard-like conditions that pummeled the Mid-Atlantic and left a foot of snow in the nation’s capital. For the week ending Dec. 26 NWS said New England will have to endure 258 heating degree days (HDD), two fewer than normal, and only 10 fewer than last week. New York, New Jersey and Pennsylvania are forecast to shiver under 246 HDD, five more than normal and eight more than last week. The Midwest from Ohio to Wisconsin is anticipated to see 252 HDD, 21 fewer than normal and seven fewer than last week.

Analysts will often look at the direction temperatures are taking rather than absolute levels. “Regardless of forecasts, temperatures trend. And it is clear that readings are trending toward the colder side in the Midwest and Northeast,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. In his view, forecasts beyond five or 10 days are difficult, but the trend in temperatures has the most significant impact. “Our money is on temperatures continuing on the colder side, and that should spur heating demand and electricity use. Until we see three weeks of warmer-than-average readings, the colder trend is likely to persist,” he said in a note to clients.

In its morning report Commodity Weather Group of Bethesda, MD, said the present Midwest surge of warm air is likely to weaken by the weekend and widespread below-normal temperature readings are favored in the six- to 10-day forecast. “Still no signs of significant warming pattern change,” said Matt Rogers, the firm’s president.

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