December natural gas inched higher Monday as traders focused less on trading and more on the latest failure of a prominent energy trading firm. Trading volume was light. At the close December had gained 1.1 cents to $3.934 and January had risen 1.4 cents to $4.056. December crude oil fell 13 cents to $93.19/bbl.

Natural gas and energy markets took something of a back seat to the failure of financial firm MF Global Holdings as traders had to scramble to close accounts and move positions following the weekend collapse of the worldwide futures and securities firm.

MF Global Holdings is the parent firm of Man Financial, a prominent energy trading and clearing firm and long-time player in natural gas futures trading.

CME Group, the parent of the New York Mercantile Exchange, limited all trading by MF Global Holdings and barred the firm’s traders from accessing the Nymex trading floor.

“Until further notice, CME Group will no longer recognize MF Global or any of its divisions as a guarantor for purposes of floor trading privileges. Accordingly, floor brokers and traders guaranteed by MF Global or its divisions may not access the trading floor,” the exchange said in a statement. That decision was the result of MF Global’s filing for bankruptcy protection Monday.

“We’ve got brokerage firms failing because of bad trading. The markets are all mixed up because there are a lot of guys who cleared through MF Global, and so when they filed for bankruptcy it was big news for they thought they were going to get a sale of the firm over the weekend,” said a California broker.

Addressing the natural gas market, the trader said, “Natural gas has no legs whatsoever. It is not going higher. You would have to get a destruction of the natural gas system for prices to rise. I don’t even think winter matters. All my customers are making lots of money on their margins.”

“The failure of MF Global is a small under-the-radar deal. How much worse can these other deals [financial rescue packages, loan restructures] get?”

If the failure of MF Global weren’t enough to cause traders to step back, funds and managed accounts saw little in the way of directional opportunities, according to a recent government report. The Commodities Futures Trading Commission in its Commitments of Traders Report for the five trading days ended Oct. 25 showed virtually no interest in pursuing the long side of the market and firms engaging in a modest liquidation of short holdings.

At the IntercontinentalExchange long futures and options (2,500 MMBtu per contract) rose 6,489 to 255,427 and short positions grew by 4,193 to 166,444. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) fell by 1,599 to 123,517 and short contracts declined 6,772 to 237,823. When adjusted for contract size, long holdings at both exchanges rose by just 23 contracts and short positions declined by 5,724. For the five trading sessions ended Oct. 25 December futures rose 6.4 cents to $3.852.

Analysts familiar with eastern markets see the severe pounding over the weekend as diminishing power demand in the short run, but signaling market shorts that higher usage is here to stay. “If would-be buyers were waiting for real cold, they got it over this past weekend. It got down to 20 degrees on Saturday night, which went well with the ‘snap,’ ‘crack’ and ‘boom’ of branches exploding under the weight of a very wet and heavy snowfall,” said Peter Beutel, president of Connecticut-based Cameron Hanover. “It was one of the eeriest sounds we have ever heard, sitting in the middle of a forest and hearing branches bursting from their trunks and crashing to the ground. It sounded like a battle. On Sunday morning, we saw that it had been.

“We bring this up because these heavily laden branches condemned hundreds of thousands to darkness and the chill of a Halloween weekend where the chilling part was the temperature. They surely would have used more power if it had been available. And in many parts of the Northeast we will be reliving the aftermath of Hurricane Irene all over, with wide areas without power for days.”

It may seem like the dead of winter at eastern points, but forecasters are calling for above-normal temperatures in their extended outlooks. WSI Corp. of Andover, MA, in its 11- to 15-day outlook sees normal to above-normal temperatures for the entire country east of the Continental Divide and below-normal temperatures to the west.

“Above-normal temperatures are expected across the Great Lakes, Northeast and Mid-Atlantic. Warmer-than-normal readings are also anticipated for Texas, while below-normal temperatures are expected along the West Coast and over the Great Basin.”

Risks to the forecast include temperatures running “colder than forecast along the West Coast and perhaps slightly warmer in the Northeast, especially if the European ensemble verifies. While the GFS ensemble shows good agreement with it, there are some differences among the models with the Canadian showing a semi-zonal flow developing,” the forecaster said.

DEVO Capital, a Colorado-based trading and risk management firm, counsels end-users and trading accounts to sell December $3.90 put options at 20 cents and said producers and others with exposure to lower prices should be holding a December-March strip consisting of $4.75 put options offset by the sale of $7 call options for a 16- to 20-cent debit.

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