Natural gas cash and futures once again moved in the same direction, and although futures recovered most of Monday's drubbing, physical markets for Wednesday delivery, on average, made just a token improvement. 

Big declines at eastern points kept the average subdued, and the NGI National Spot Gas Average rose 4 cents to $3.15. Temperature outlooks and prices diverged at Midwest and eastern locations, and firm pricing in the Midwest, Midcontinent, Texas, Louisiana, the Rockies and California was able to offset hefty losses in New England and the Mid-Atlantic.

Futures zoomed higher, prompted by trader recognition that at least for the moment the risk-reward ratio favored positioning on the long side of the market as weather forecasts had little room to turn much warmer. At the close February had advanced 17.5 cents to $3.278, and March gained 16.2 cents to $3.275. February crude oil fell $1.14 to $50.82/bbl. 

"This market has been getting hammered quite a bit and is showing a little bit of retracement," said a New York floor trader. "There is definitely near-term support at $3.10 and $3 below that. We've already broken $3.25 on the upside and resistance would be at $3.335 and $3.50."

The trader said he would look for continued settlements above $3.25 as evidence of a continuing price rebound. "We've seen a little bit of profit taking already as prices got up to $3.32 and retraced to $3.27. The profit-taking could be all done with and you might see another surge Wednesday." 

Prices weren't exactly surging at Midwest points, but temperatures were expected to either remain well below normal or trend to below normal by the end of the week. Forecaster predicted that the high Tuesday in Chicago of 50 would drop to 43 Wednesday and fall to 29 by Thursday, 2 degrees below normal. Minneapolis' 16 degree high Tuesday was expected to drop of 10 by Wednesday before recovering slightly to 12 by Thursday, 10 degrees below normal.

Gas at the Chicago Citygate added a dime to $3.18, and most market points from Chicago west followed suit. 

Deliveries to the Henry Hub rose 9 cents to $3.21, and gas on Panhandle Eastern gained 12 cents to $3.04. At Opal, next-day gas changed hands 16 cents higher at $3.12, and at the PG&E Citygate Wednesday deliveries rose a dime to $3.45.

Surging prices were certainly not on the mind of eastern physical traders as much as surging temperatures. Next-day gas along the Eastern Seaboard dropped. reported that the high in Boston Tuesday of 33 would jump to 50 on Wednesday and 55 on Thursday, a stout 19 degrees above normal. New York City's Tuesday high of 34 was forecast to advance to 50 and reach 58 on Thursday, a whopping 20 degrees above normal. 

Gas at the Algonquin Citygate tumbled $1.33 to $3.82, and deliveries to Iroquois, Waddington shed 38 cents to $3.62. Gas on Tennessee Zone 6 200 L retreated 1.16 cents to $4.41.

Gas on Texas Eastern M-3, Delivery fell 13 cents to $3.06, and packages bound for New York City on Transco Zone 6 were quoted 9 cents lower at $3.23. 

Futures traders saw limited downside risk and weather models held steady.

Medium-term weather runs showed a balanced mix of colder and warmer events, according to forecasters. WSI Corp. in its Tuesday morning 11- to 15-day outlook said, "[Tuesday's] 11-15 day period forecast is warmer during the start of the period but colder by day 14. These changes more or less offset each other, so CONUS GWHDDs are down 0.5 to 109.2 for the period. These are 47.2 below average!"

 It's not likely that the forecast will get much more bearish. "The forecast is already extremely warm so there [are] minimal warmer risks. The Southwest and central U.S. have cooler risks late," WSI said.

 Inasmuch as weather forecasts have been so volatile, traders suspect that funds and managed accounts will not be willing to force the short side of the market.

 "This market is seeing a significant overnight price bounce that follows a sizable weather-induced decline of about 75 cents, or some 20% during the past two weeks," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. "This recent price downswing has furthered a string of some half-dozen major short-term trends in both directions as this heavy usage cycle has seen unusual volatility within the weather patterns from unusually hot to abnormally cold on several occasions.

 "With storage levels at around five-year averages, the market is able to respond to occasional updates advising above normal trends. But on the other hand, the bulls can cite the erasure of a longstanding supply surplus and production that has been running well below a year ago. Add in strong export activity and continued coal-to-gas displacement and a case can easily be built for a sustainable supply deficit as this winter proceeds.

 "Given the fact that these outlooks can change dramatically virtually overnight, we feel that the money managers will be reluctant to press the short side assertively following the recent price plunge. In other words, any surprises on the weather front going forward are more apt to be bullish than bearish, in our opinion. With this in mind, we have initiated a buy recommendation in March futures at the $3.13 level or below after having been pushed to the sidelines out of our April-December 2017 bull spread in yesterday's trade."

Others reported similar difficulty with the long side of the market. Tim Evans of Citi Futures Perspective said his earlier long position in the February contract at $3.35 was exited via a $3.15 stop-loss order Monday.