Following on the heels of price strength in the overnight Access trading session, natural gas futures extended to a new, one-week high Monday morning. However, as with the other rallies above the $5.30 mark in the last month, overhead selling entered the market and was enough to crush the advance. The February contract finished at $5.251, up 10.8 for the session, but well below its early morning Access high at $5.36.

Monday’s price action was consistent with the market’s recent strategy of selling rallies and buying dips, traders agreed. Since rocketing higher in early December, natural gas futures have traded back and forth within a wide, $4.80-5.40 trading range. Each time the market tests one end of the range, buying or selling is quick to either lift the market higher or pressure it lower. “Why would you buy near the highs when you can wait a few days and buy near the lows,” a trader commented. “This market lacks any sort of follow-through in either direction.”

Although it recovered back into positive territory late in the session, crude oil futures were also a price-depressant early Monday as prices fell to almost $31 a barrel on OPEC’s decision to hike export quotas in response to the strike in Venezuela.

Looking ahead, traders expect more choppy, range-bound activity Tuesday and Wednesday heading into the release of fresh storage data Thursday. While admitting that it is possible, most traders feel the market will not break out of its recent trading range until after the inventory report is released.

Because this Thursday’s figure will be the first report in several weeks not to be affected by reduced holiday demand, Kyle Cooper of Salomon Smith Barney is anxious to see how the actual report stacks up against his estimated 99-109 Bcf withdrawal. “A draw smaller than anticipated, would help to confirm a thesis of fuel switching/lost demand,” he wrote in a note to customers Monday.

However, Cooper is quick to admit that a true test of the thesis will not come until next Thursday’s report, which covers this week’s frigid temperatures in the eastern half of the country. “It is possible that the recent apparent bearishness in the reports is actually associated with the simple reduction in [residential and commercial] load rather than any fuel-switching/demand loss. This would simply mean temperature sensitivity is even more acute than currently calculated,” he continued.

For Cooper, a possible scenario is that prices would rally on a withdrawal next Thursday that is large from an absolute level, but small on a temperature-adjusted basis. “This would be an opportunity to sell,” he reasoned.

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