Storage and Weather Deal Futures One-Two Combo

Fueled by a record-setting storage withdrawal released yesterday and revised outlooks by both private and governmental weather forecasters, natural gas futures rocketed higher yesterday to easily notch new all-time highs.

After tumbling lower in a technical sell-off Wednesday afternoon, the market was a bull's dream Thursday, erupting more than a half-dollar in active trading. Modest profit taking was seen at the close to bring the market off its $6.73 high. But still the gains were impressive, with the January contract leading the advance, up 40.8 cents at $6.589.

According to the American Gas Association, 146 Bcf was pulled from underground storage facilities last week, decreasing total working levels to 2,502 or 76% full. Not only was the withdrawal bullish compared with the 5 Bcf net injection seen during the same period last year, but it also eclipsed the range of market expectations centered on a 90-125 Bcf draw down. According to the AGA, the five-year withdrawal for last week is 44 Bcf.

However, no sooner had traders digested fresh storage data then they were presented with another parcel of fundamental bullishness. According to prominent industry weather forecaster Jon Davis of Salomon Smith Barney, a series of three Arctic blasts are expected to descend into the eastern U.S. between now and the middle of December, bringing temperatures back below normal. The National Weather Service concurred in its latest six- to 10-day forecast, which calls for below-normal temperatures in the northeast corner of the country through at least Dec. 10.

And while fundamental factors set the stage for the market advance Thursday, technical factors did little to dissuade the buying interest. After watching prices bounce off stubborn resistance at $6.50 Wednesday, bulls were relieved when the January contract gapped above that level to open at $6.56 yesterday. That paved the way for a retest of the prior life-of-commodity high at $6.68.

While intermediate-term traders should expect a test of psychological resistance at $7.00, there exists the possibility for a sell-off Friday, warns Nymex local Ira Hochman. "When the market develops back and forth early and then rallies, it has a good chance to fail.. Beware if the market fails up here and trades below $6.57."

Peter Hattersley of New York-based Rafferty Group is a little more bullish and lowers his pivot area down to the aforementioned resistance (now support) level at $6.50. "I would be long up here for a possible test of $7.00. Only a move below $6.50 would make me look to head for the exits," he said.

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