After trading lower in the morning to stake out a $7.10 low Monday, April natural gas futures began to dig themselves out of the basement in the afternoon. The prompt month settled at $7.318, up 4.5 cents on the day and just 2.2 cents off the session’s high.

While some experts said the morning sell-off was sparked by announced oil production increases, the natural gas futures price rebound in the afternoon was linked in part to a revised weather forecast for the Northeast.

“The National Weather Service changed the weather forecast again,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “For Wednesday and Thursday they were forecasting temperatures in the upper 50s/lower 60s for New York. Now they are talking snow. It caught the local traders short.” However, Kennedy believes futures will be range bound for a while between $7.06 and $7.38.

The settles for crude and heating oil futures were unexciting on Monday. While April crude got back above the $57/bbl mark for a short time, it ultimately settled 10 cents lower on the day at $56.62/bbl. Likewise, April heating oil explored the $1.58/gallon level before collapsing back to close at $1.5735/gallon, up less than a cent on the day.

“Natural gas appears to be trading on its own devices as it should be,” said Kennedy. “Fuel switching is the biggest myth in natural gas trading. For example, a lot of the industrials fuel switched. They went to coal, so they can write long-term contracts. They are sick and tired of the natural gas roller coaster.”

However, some traders will be keeping a sharp eye on OPEC production levels. If natural gas prices are to weaken, they believe significant help will be required from more moderate petroleum prices. On Wednesday OPEC raised its quota by 500,000 b/d, and also authorized the group’s president to implement a further boost of the same size if needed. That second increase would take production quotas to 28 million b/d, above the 27.7 million b/d OPEC was pumping last week, an OPEC spokesman said.

The increase in production is significant. Vienna-based OPEC in recent years has reduced output in the second quarter to keep stockpiles from soaring when Northern Hemisphere winter heating demand dwindles. Last week’s decision to raise production quotas, led by Saudi Arabia, marks a change of strategy because the group will let inventories rise to lower prices and meet demand. Historically OPEC has attempted to manage prices within a “band,” realizing that prices at the upper end of the band would blunt economic activity and ultimately the demand for petroleum, traders pointed out.

Money managers may not be buying the idea of whether increased OPEC production can quell rising petroleum and, indirectly, natural gas prices. Funds and managed accounts have continued to reduce their holdings of natural gas short positions. On Friday, the Commodity Futures Trading Commission reported that as of March 15, noncommercial accounts pared their net short position to 7,044 contracts, down substantially from 14,003 contracts reported March 8. Since late last year the highest net short position attained by managed accounts was 55,490 contracts on Jan. 18. At that time, spot futures settled at $6.137.

Short term weather conditions will provide traders will plenty of challenges this week. Joe Bastardi of AccuWeather forecasts three active weather systems, or “bowling balls” to roll across the U.S. over the next seven to 10 days. The first of the three systems will hit the East by Wednesday, bringing cold and rain. Bowling ball number two hits California early this week and reaches the East by Saturday, bringing with it a chance of some cold Canadian air. The third system develops in the Mississippi Valley at mid-week and heads east early next week.

Bowling balls or not, temperatures are not forecast to be that far from normal. AccuWeather forecasts a high Monday in Chicago of 40 degrees and a 44-degree high by Friday, and by next Monday highs should reach 50 in the Windy City.

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