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Traders Call Futures on Friday a 'Wash,' Look to New Year's Weather Outlook for Direction

In the holiday-shortened trading session on Friday, February natural gas, on limited volume, tested lower first before rebounding in the afternoon. After failing to gain traction to the upside, the prompt month ended up settling nearly unchanged at $11.225, two-tenths of a cent higher on the day, but $1.177 lower for the week. Trading closed at 1 p.m. EST Friday ahead of the New Year's Day holiday weekend.

During the course of Friday's session, when traders and trades were equally sparse, February natural gas hit a low of $10.880 before putting in a high for the day of $11.380. Ultimately, however, traders called the day a wash as they prepared to reset for the new year.

The last week of trading for 2005 also saw the expiration of the January contract. After falling from a high of $15.780 to a low of $10.720 in two weeks, January futures expired on Wednesday at $11.431.

Traders agree that the weather will call the next shot for natural gas futures. "The market remains weak as the weather remains bearish," said Citigroup's Kyle Cooper. "Mother Nature will not be bullish or bearish forever."

And speaking of weather, the year of the hurricane wouldn't be complete without a last hurrah. While the traditional Atlantic hurricane season has been over for exactly one month, the National Hurricane Center reported Friday that Tropical Storm Zeta has materialized about 1,070 miles southwest of the Azores. Zeta is the record 27th named storm to hit the Atlantic this year.

Focusing on the futures market, Rafferty Technical Research broker Steve Blair said Friday's action was pretty uneventful. "The market was pretty quiet Friday," he said. "I did get a little bit done in the market, but not too much."

New York City-based Blair said that while the natural gas pit at the New York Mercantile Exchange on Thursday had approximately a 75% attendance rate, none of the big local traders were on hand. "Once expiration happened on Wednesday, most of the larger locals were done for the year. They were gone and it has been pretty quiet the last two days of the week. Because the volume has been thin, it has been a bit difficult to get some things done out there."

While he allowed that the market got pushed around a little bit during the last half hour of trading, Blair noted that the interesting thing was the fact that the market managed to close above his first major support level of $11.

"I think that is a strong sign that the market could hold in this range," said Blair. "Even though we broke the bull trend technically on the big drop down from $15.780, I don't think we are going to go much lower. As long as we have mild weather, I think prices will remain soft. However, the second we see a forecast for more normal or colder weather, I think this market will get strong again in a hurry."

The market's next move will really be dictated by the weather picture, the broker said. "I think we will all learn a lot from the Access trading market Tuesday morning. I think that will point the direction for the first move of the new year."

Medium-term weather forecasts continue to grab traders' attention, and a prominent forecasting firm predicts not only mild temperatures for the weeks ahead but a trend of expanding warmth that is seen as encompassing most of the U.S.

In its six-to-10-day forecast, AccuWeather shows a large area of above normal temperatures in most of the U.S. and stretching south and west from a broad arc extending from Wisconsin, Michigan, Ohio, the Mid-Atlantic and New England. North and east of the arc are forecast to be normal. However, in its 11-to-15-day forecast, the area of above normal temperatures increases and the portion of the U.S. expected to receive just normal temperatures contracts to include small portions of Wisconsin, Minnesota, Michigan, New York and New England. The remainder of the U.S. is still forecast to be above normal.

The forecast has not been lost on traders. According to a Bloomberg survey of 16 traders and analysts, seven said Nymex gas futures will drop in the first week of January. Five predicted little change and four said prices will rise. The poll was taken Thursday.

The Bloomberg survey has a robust track record. Eleven of 14 respondents from last week's survey predicted that prices would fall in the last week of December. Bloomberg says the survey has correctly predicted the market's direction for seven of the past 10 weeks.

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