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$8 Resistance Continues to Hold as Futures Creep Higher

Borrowing the premise from the 1993 movie Groundhog Day in which Bill Murray's character is doomed to continually repeat the same day of his life forever, natural gas futures traders find themselves continuing to assault $8 psychological resistance in the December contract only to experience the same result each time -- failure. On Monday the prompt month reached a high of $8 in afternoon trading before sinking to close at $7.894, up a dime from Friday's close.

"What we saw Monday is exactly what we have been seeing the last two weeks. Nothing is going to change here in the near term," said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. "You are going to buy it in the $7.30s and you are going to sell it just above $8. We are range-bound until we get a picture of what winter is really going to look like." The broker noted that Monday marked the fifth recent failure running at, or just above, the $8 level.

Citing some colder than normal winter projections, Kennedy said it is important to understand just how cold things will actually get. "AccuWeather is issuing its final winter forecast next week, but I don't expect there to be any major changes. All of the independent forecasters are calling for a below normal winter," he said. "Let's see how cold...cold is," the broker said. "A normal winter would be a lot colder than it was last year, so they are saying this winter will be 1-2 degrees Celsius colder than normal...yeah, the market might pay attention to that."

Another trader added that storage and weather remain key over the next couple of weeks. "If the market can hang out at 3,400 Bcf (storage) for the next few weeks, then all of a sudden you are going into December at 3,400 Bcf and that would be pretty bearish," said a Denver trader/marketer. He said the real question is what kind of storage numbers will the industry see for the next couple of weeks. "I think a number of traders feel that will 'set the table' for the winter, but I'm not sure that is the case, for I have seen situations where high injection numbers can quickly become negative after a cold snap of a couple of weeks."

He pointed out that the surplus relative to the five-year average was 276 Bcf for the inventory report covering the week ended Oct. 27 and for the week ended Nov. 3 it had shrunk to 246 Bcf. "It's still a ton over, and I would like to see how the storage numbers go into December. It really all goes back to weather."

By mid-week weather bulls may have the upper hand. AccuWeather reports that a strong cold front trailing a major storm will sweep southward through the southern Plains Tuesday night and early Wednesday. "Gusty north to northwest winds will quickly usher in much cooler air across the region, and afternoon temperatures on Wednesday will be about 10 to 15 degrees colder than what they will be on Tuesday," said Brett Anderson, an AccuWeather meteorologist.

Temperatures are forecast to be near seasonal norms. The high Monday in Chicago was expected to reach 46 degrees, but by next Monday, the city was likely to see a high of 44 degrees. The normal high in Chicago this time of year is 49 degrees. In Philadelphia, Monday's high was predicted to reach a balmy 62 degrees, but by next Monday it was expected to drop to 48 degrees. The normal high in Philadelphia is 56 degrees, the forecaster said.

On a cumulative basis, both cities are below a normal heating degree day (HDD) tally for November. Chicago stands at 242, just below the normal of 244 for this time of the month. Philadelphia has recorded 150 HDD, which is well below the norm of 182.

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