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Futures Continue Higher as Cold Snap Looms

With a run of winter-like temperatures bearing down on the Midwest and East, natural gas futures traders on Tuesday continued to explore the upside, despite continued weakness in crude futures. February natural gas notched a high of $6.650 before closing at $6.631, up 25.3 cents on the day. February crude put in a low of $54.25/bbl before settling at $55.64/bbl, down 45 cents.

Combined with Monday's 19.4-cent increase, the prompt month has already climbed 44.7 cents in the first two days of the week. A prompt month has not been as high as Tuesday's $6.650 since the January contract traded at $6.875 on Dec. 22.

Even with crude futures weakness and an overflowing natural gas storage surplus, forecasts of a cold snap in heavy natural gas-usage regions was all that was necessary to perk up bulls. For the moment, the bulls can't wait to stampede prices higher. An expected arctic blast beginning in the West but migrating east later in the week may be all that's needed to stun those who anticipate continued unseasonal weather and bin-busting inventories.

"The market is very interesting right now. We tested the $6 support level twice last week and now we have rebounded higher," said Steve Blair, a broker with Rafferty Technical Research in New York. "I think we will keep fairly stable around this current price level. Our first major resistance level is up at $6.75, while the next level is up at $7 and then $7.18, which basically represents the support levels that we broke down through when the market came off."

As with most moves during this time of year, Blair said the current bounce had to do with weather. "I think people have the scent of cold weather here because a chill is coming in. It is already getting cold here and forecasters are still talking about some real winter-type weather hitting the New York area sometime next week, so I really think weather is on peoples' minds," he said. "If traders are not putting on length right now in the natural gas futures arena, then they might just be getting out of their short positions. The downside is somewhat limited when cold weather is involved, while the upside is potentially a lot more volatile. We could see a continued move higher if this cold weather materializes and decides to stick around."

The Weather Channel said that by Thursday, real cold will start to make its way into the Midwest. Snow showers will be possible in the Upper Midwest and Northern Plains Thursday and Friday, with rain possible (occasionally heavy) over the mid-Mississippi Valley on Thursday, and into the Ohio Valley on Friday and Saturday. "By Friday and Saturday, snow and wind could pose some problems over portions of the Central Plains and throughout the Missouri River Valley with much colder temperatures finally filtering into the Northern Plains and Upper Midwest," the forecaster said.

However, some traders are not so sure that the cold blast will have all that great of an impact. "This week's weather inspired strength has been relatively muted as a significant headwind is still being encountered in the form of record storage levels and the likelihood of an expansion in the supply surplus against average levels during the next couple of weekly reports," said Jim Ritterbusch of Ritterbusch and Associates. If the bulls are going to get moving they may have to find some way to thwart any impact of record storage. "As a result, a continuation of record supplies now appears likely through the balance of the heavy usage period despite the possibility of unusually cold temps through the rest of the winter," said Ritterbusch.

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