Cold Weather Forecasts Usher Futures Above $5.00

Fueled by forecasts calling for below-normal temperatures and boosted by technical factors, which have suddenly turned very bullish, natural gas futures rumbled higher yesterday as traders tried their hand again at the long side of the market. After gapping convincingly higher on the open, the December contract never looked back as prices drifted 23.2 cents higher to close at $5.081.

Heading into Tuesday's session, traders were mixed as to what to expect following Monday's retracement. While some were unflinchingly bullish for technical reasons, others were bearish citing storage concerns and lack of cool temperatures in the eastern half of the U.S.

Tom Saal of Miami-based Pioneer Futures was squarely in the camp of the former and noted that the market was very oversold ahead and thus primed for a short-covering rally Tuesday.

Susannah Hardesty of Indiana-based Energy Research and Trading agreed, adding that fresh weather forecasts released both Monday and Tuesday afternoon cemented the bullish sentiment. "Monday's pullback was simply that, a short-term pullback in prices, not a reversal to the downside. What is needed is confirmation of the cold weather that Jon Davis and Strategic Weather Services are projecting. And that confirmation may have come [Monday] afternoon in the NWS 8 - 14 day outlook, with below normal conditions over most of the country."

That longer-range forecast was corroborated Tuesday afternoon when the NWS released its latest six- to 10-day outlook, which calls for nearly the entire U.S. to experience below-normal temperatures through at least next week. In fact, the only above-normal temperatures will be seen in southern Florida, which doesn't see much heating demand anyway.

Looking ahead, Hardesty believes that this move above $5.00 has turned the market technically bullish and she recommends that buyers that have not already filled their winter requirements, do so now.

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