January natural gas futures resumed their assault on $7 price support in Monday trade, recording a low of $7.010 before closing out the day at $7.032, down 12.3 cents from Friday’s finish. While traders were debating storage levels and weather forecasts, they were also forced to account for the possibility of an out of season tropical storm, which was gaining strength east of Puerto Rico.

Psychological support at the $7 price level continues to gain credibility as the prompt-month contract continues to rack up failure attempts. Monday’s rebuff came as the fifth attempt and failure to break below $7 out of the last six regular trading sessions.

“The natural gas market is again on the defensive, with the Monday morning temperature outlook warmer than Friday afternoon’s edition,” said Tim Evans, an analyst with Citigroup in New York. “Storage remains high enough to be a weight on prices, but the larger drop from the $8 level to $7 may have already discounted this to an extent that leaves the market more balanced. In other words, the risk of future price erosion might be offset here by the chance of a technical rebound, if the market manages to find enough heating demand or a bullish storage surprise to help spark a recovery.”

Weather forecasts still look like a majority of the country will see another week of cold before a lasting warm-up comes into play. The Frontier Weather six-to 10-day outlook for Dec. 15-19 calls for below-normal temperatures along a thin strip of the West Coast and from the Mid-Atlantic through the Northeast and Maritimes Canada. Above-normal readings are expected in the northern Plains. In the 11-to 15-day forecast covering Dec. 20-24, temperatures are expected to average above normal in the Midwest and Northeast, with normal conditions elsewhere.

According to Matt Rogers, MDA EarthSat meteorologist, the 11- to 15-day period is expected to show widespread above-normal temperatures east of a line bisecting Arizona, Utah and Montana. Only Florida is expected to be normal. West of the line is anticipated to be normal and a thin sliver along the coasts of California, Oregon and Washington is forecast to be below normal. “The main story in the eastern two-thirds of the continent is warm weather. The warmest days of the period are early, as a Chinook in the Northern Plains could result in several days of much-above-normal temperatures,” said Rogers in an early morning report to clients. He went on to say that Pacific flow continues to be a dominant influence later in the forecast, and is one of the main contributing factors to the warmth in the Plains and East, and the seasonal to cool conditions in the West.

Trading advisors continue to remain short. “On a trading basis, we continue to hold our short positions and look for a rally to add to our positions,” says Mike DeVooght of DEVO Capital Management, a Colorado trading and risk management firm.

He advises trading accounts to buy February and sell April futures if the February contract should ever reach a 20-cent discount to April and to sell April at $8 if the opportunity presents itself. He counsels end-users to stand aside and producers to hold short a winter 2007-2008 strip at $9.00 for 65% of production. On Monday, April futures settled at $7.144, while February closed at $7.142.

More than a week after the traditional Atlantic hurricane season came to a close, the National Hurricane Center (NHC) said Monday a closed surface circulation has developed 200 miles east of Puerto Rico with the aid of a broad area of low pressure. The NHC said that while a tropical or subtropical cyclone could form in the next 24 hours, upper level winds are expected to become less favorable for development over the next couple of days. The government agency said it was keeping tabs on the system as it unfolds.

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