Amid a heavy round of market-on-close commercial selling, natural gas futures dropped perilously close to new 34-month prompt-month lows yesterday as traders — armed with the knowledge that temperatures are well-above normal across much of the East — gained confidence that there would not be a short-covering rally until after the February contract goes off the board Tuesday. With that, February completed its penultimate trading session at $1.908, down 12.9 cents for the session.

According to the latest six- to 10-day weather forecast released yesterday by the National Weather Service, temperatures in the eastern half of the country are expected to moderate back to more seasonal readings by this weekend. In fact, the NWS even calls for a return to below-normal temperatures for the northern Great Lakes region and northern New England. Meanwhile, average temperatures are expected across the rest of the East, much of Texas, and the Rocky Mountains. Only the central and northern plains are expected to continue to experience above-normal temperatures next week.

However, that bull-friendly weather forecast was not enough Monday to dissuade sellers basking the warmth of a scorching January thaw. Temperatures rose to 25 degrees or more above seasonal highs yesterday in places like Washington, D.C., Philadelphia, New York and Boston. Those mild readings are expected to continue until late in the week when a cold front is due to arrive.

Several traders polled by NGI yesterday were surprised by the market’s ability to hold its ground as well as it did considering the fundamental situation. One possible explanation for the relative strength, a trader offered, is that there remains a hesitancy to continue to sell this market while such a large speculative short position looms. According to the Commitments of Traders Report released Friday by the Commodity Futures Trading Commission, non-commercial traders increased their short position yet again during the week ending Jan. 22 to a new all-time record short position of 62,643. Meanwhile, commercial traders enlarged their long holdings over the same period to more than 58,000 contracts.

While admitting that attempting to guess the price action on expiration-day is a crap-shoot, Tom Saal of Miami-based Pioneer Futures looks for a rebound sometime soon. “Long-term trend support comes in at around $1.80 and this market is very oversold. Buyers should be ready to take advantage of a bounce.”

In daily technicals, support exists first at the final settlement of the October 2001 contract at $1.83. Below that, more buying is likely at October’s low of $1.76, which stands as the 34-month continuation chart low dating back to March of 1999.

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