Market-on-Close Buying Propels Futures Above $10

Buoyed by a massive buying binge by commercial traders who were long paper positions and short January futures, natural gas futures soared higher during the last 30 minutes of trading Wednesday, catapulting the market briefly above key resistance at $10.00. When all the dust had cleared and the orders tabulated in the data room at Nymex, the numbers were staggering. During its 20-day tenure as prompt month at Nymex, January gained $3.773 or more than 60% to notch the highest settlement in the history of the commodity at $9.98.

A Houston-based risk manager was quick to point to the efficacy of online trading systems, which allow nearly anyone to be a day trader, as a reason for the late price rise. "Usually traders will enter into an EFS (exchange-for-swap) agreement near the end of each month in order to get out of their paper position," he said. "However, because the market kept moving higher this month, there was a disproportionate amount of people that needed the same side of the EFS. As a result of the lack of players offering the other side of the EFS agreement, those long paper and short futures were forced into the futures market late [Wednesday]... This is what you saw during the last 30-minutes.. Heavy [market-on-close] buying by those looking to peel off their short positions at the close."

According to the American Gas Association 175 Bcf was pulled from underground storage facilities last week, bringing total working gas levels down to 1,938, or 59% full. Traders were quick to call the storage report neutral as the 175 Bcf withdrawal fell neatly within the 155-200 Bcf range of expectations. However, versus historical comparisons, the number was slightly bullish as it narrowly exceeded last year's 173 draw and the five-year historical average of 148.

In its debut as Nymex prompt month last night in overnight Access trading, the February contract was off to a slow start, up only 1.9 cents to $9.305 as of 7:22 p.m. (EST). Resistance for February is seen at $9.34 while support lags considerably at $7.09, according to Raffery Energy Group of New York.

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