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January Futures Finish Lower for Fourth Consecutive Session

After a mostly uneventful trading session that saw a slim 19-cent trading range, natural gas futures traders Tuesday afternoon pushed the January contract lower, keeping the recent directional trend intact. After putting in a low of $7.670, the prompt month closed at $7.685, down 12.1 cents on the day.

Tuesday marked the fourth consecutive close lower as the January contract has shed $1.186 since the first of the month. Traders on Tuesday attempted a rally just before 1 p.m. EST, but the move was snuffed out after reaching only a high of $7.860.

"The market was pretty quiet Tuesday. The strength we saw mid-afternoon was attributable to some short-covering, but the market ended up giving it all back," said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. He noted that weather remains key to the futures market's price direction.

Even with the recent string of down-days, a rebound over the next few sessions wouldn't be that big of a surprise, especially with the near-term forecast of cold on the radar. According to AccuWeather, a strong shot of arctic air will deliver the "coldest air of the season" to the Northeast, significantly increasing the lake-effect snow from the Great Lakes. "The parade of Alberta Clipper storm systems crossing the Northeast will not cease through the remainder of the workweek. As one system departs, another storm with bitterly cold air and winds in its wake today drops into the Upper Midwest," the forecasting firm said.

AccuWeather meteorologist John Kocet said Tuesday afternoon that things should get really cold late this week in the East. "This time of year, bitter arctic air typically resides over the frozen and snow-covered ground of central and northern Canada," he said. "Whenever the jet stream plunges southward, the cold usually does the same. The next round of frigid air will blast into the northern Great Lakes and Upper Midwest Wednesday. This latest arctic surge will impact the entire East within the next 72 hours with the core of the cold moving from the Midwest to New England. Primary concerns will be very low wind chills, whiteouts in the Great Lakes snowbelts and much higher heating costs.

Commenting on Monday's giant 61.6-cent drop, some top traders don't see it as an omen of things to come. Jim Ritterbusch of Ritterbusch and Associates saw the sell-off as fund liquidation, and said that Monday's "price action underscored this factor to a large extent." He also said that weaker physical prices contributed to the decline.

"At this early stage of the heating season and even allowing for a record level of supply, we still feel that upside response to cold temperature forecasts will prove to be greater than downside reaction to warmer forecasts. As a result, we are reluctant to follow this price decline below the $8.00 level. Overall, we are still viewing this market as being in a wide sideways or consolidation phase," he said.

Traders looking for the market's true direction continue to eye the weather picture down the road. Traders are just a little curious as to whether the cold that still maintains an icy grip on the Midwest -- but is forecast to give way to warmer temperatures next week -- is a "one-shot deal" or if there is more to come.

Tom Skilling of WGNTV in Chicago cites an interview he had with Jim Angel, an Illinois state climatologist, about the likely outcome of this winter's weather in Chicago, a large market for natural gas.

"Fall has been abnormally cool and wet. At first glance this seems an ominous sign," said Angel. He demonstrated, however, that there is not a whole lot of connection between fall and winter weather. Angel says forecasters have been monitoring ocean warming connected with El Nino off South America, and in the past, that's been shown to be important enough that government forecasters are basing a lot of this winter's outlook on it.

"The National Weather Service is calling for an increased chance of above normal temperatures and below normal precipitation. They don't give a snowfall forecast but if you look between the lines, warm temperatures drive precipitation conditions. That usually means less snowfall," he said.

Angel predicts Chicago will see some "interesting weather" and "if I had to bet money on it I would say we'll see it in December."

As always there are caveats, and if the recent cold in Chicago constitutes the "interesting weather" Angel mentioned, then there could be more to follow. "There is one factor that may turn out to be important and which is hard to forecast well in advance. Ocean waters in the North Atlantic are running warm. This can buckle jet streams, producing a pattern which pours cold air from Canada into the U.S," said Skilling. "Dr. Angel tells us the Canadian snow cover is early this year, [and] that too could argue for some cold weather."

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