Boosted by what may be the most bullish weather forecast to hitthe industry in years, natural gas futures spiked dramatically inmultiple buying surges Sunday night and Monday morning as traderspressed the envelope of their long exposures.

After waiting impatiently while trading was halted by Nymex foran hour yesterday between 10:27 and 11:27 A.M. (ET), traders wereonce again on the offensive late Monday morning as they pressuredprices to a new $7.95 high. Light profit taking was seen yesterdayafternoon, trimming gains to deliver the January contract to$7.433, up a cool 76 cents on the day.

According to esteemed industry weather forecasters Jon B. Davis andMark Russo of Salomon Smith Barney, the myriad of computer modelsMonday morning were pointing to a massive Arctic air mass surging fromthe Polar regions down into the U.S. next week. “This air mass isextremely impressive and is expected to be in the range of about 1050millibars (the standard unit of measurement for atmospheric pressure)when it moves into the Northern Rockies…. Keep in mind that we havenot had an Arctic air mass this strong move into the lower 48 duringthe past four winters,” they wrote in SSB’s daily Energy Weatherreport aimed at heating oil and natural gas markets (see Daily GPI, Dec. 5).

As recently as Sunday evening, the National Weather Service wascalling for below normal temperatures next week for a large chunkof the northern half of the country from Vermont extending on awave-shaped line drawn south to Texas and then back up to thePacific Northwest. South of this line, normal temperatures areexpected for the Dec. 9-13 period. North of the line, below-normaltemperatures are forecast.

Looking ahead, Nymex local Ira Hochman believes that thosetraders with strong intestinal fortitude should continue to playthe long side and look to buy January below yesterday’s midpoint at$7.575. While he admits there is no exact science for knowing whento exit those longs entirely, Hochman notes that there was aselling tail yesterday in the $7.80-95 area. A selling tail, heexplained, is an area of resistance formed when a market makes ahigh on the day, but does not trade in that area for very long.Monday, for example, the market spent less than 30 minutes above$7.80. Another potential sell signal is the way in which commercialand locals alike have treated the March-April spread. Hochman hasobserved heavy interest in buying March and selling April, whichhas caused the March-April spread to widen considerably on the movehigher. He believes traders are betting heavily that cold weatherand possible storage woes in February will spur March futuresdramatically higher. When you start to see that spread(March-April) compressing again, it will be a sign that tradershave given up on winter. Until that time, don’t short this market,he warned.

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