Greased by a higher opening, the natural gas futures market worked its way efficiently higher Friday as modest, but steady local and speculative short-covering promoted prices to their highest close in nine months. In addition to the chilly weather forecasts for the middle and end of the month, the market was rocked again Friday by the third increase in Nymex margin requirements in the last week. The January contract exploded 60.6 cents higher Friday to finish the week at $7.221.

“Nymex raised margins for customers to $13,500 from 11,475 and weak shorts were quick to cover,” said Tom Saal of Commercial Brokerage Corp. in Miami. Locals were quick to cover, Saal added, noting that market-maker Sandy Trot along with several other influential locals — who knew first-hand of the margin increase — were seen as buyers in the rally.

“No sooner had we tested $7.00 [Thursday], than people started looking for prices to go to $10,” a cash market trader recounted. “Personally, I was wondering what had happened to $8 and $9,” he half-joked. But for many people the price increases seen on Nymex over the past couple weeks are no laughing matter. On Wednesday, chemical maker Salt Lake City-based Huntsman LLC called on Congress to investigate Nymex gas futures trading with an eye on overhauling the nation’s natural gas pricing structure (see Daily GPI, Dec. 11), and on Friday Utah Republican Sen. Orrin Hatch, who happens to be chairman of the Senate Judiciary Committee, said he would hold hearings in the new year (see related story).

However, most market watchers would rather see market prices equilibrate naturally rather than have the government make its presence felt. And for Arkansas-based consultant Steven Mosley, lower prices are not too far off. “I think we will see one more significant high,” he said prior to the market’s rally Friday. “Storage will keep a cap on this market. Unless we see another brutally cold winter like last year, I think that you will see lower prices by the end of this month or possibly very early next year.” In an early look at this Thursday’s storage report, Mosley calls for another withdrawal similar to last Thursday’s 111 Bcf figure.

But not all fundamental traders are looking for lower prices. Kyle Cooper of Citigroup, who has been a staunch bear as of late, may now be changing his tune. “We should have purchased a futures contract after the sharp sell-off to cover the short call,” he wrote in a note to clients Thursday. A shift in some of the indicators may point toward cooler temperatures and that is a concern. While fundamentally we certainly do not believe this is sustainable, until temperatures moderate, prices are likely to remain very high.”

While not calling for another Ice Age, the latest six- to 10-day forecast from the National Weather Service does call for a combination of normal and below normal temperatures for the eastern half of the country. Specifically, the NWS expects a swath of below-normal mercury readings to extend from Louisiana to Washington, DC for the Dec. 18-22 period. At the same time, normal temperatures are predicted for the Northeast.

In daily technicals, Tim Evans of IFR Pegasus in New York is bearish, but is giving the market room to be irrational up at these levels. “We are on the sidelines in January natural gas with a sell stop at 6.33 to take a 25% short exposure,” he wrote in a note to clients Friday. A buy stop at 6.76 would limit his initial risk on the trade, he added.

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