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Futures Rebound to Settle North of $7 Again

Bringing to a close a week of large moves in both directions, February natural gas futures ended on a high note Friday. After recording a high of $7.190, the contract closed out the week 27 cents higher at $7.175, up 27 cents on the day and 28.9 cents higher than the previous Friday's close. February options went off the board Friday and February futures will follow suit Monday.

Market volatility was high during the week as the prompt month explored higher and lower territory on fluctuating weather forecasts. After completing a four-day, $1.363 push higher to $7.597 on Tuesday, some traders were wondering if perhaps the market had come too far too fast. In response, the February contract slid 17.6 cents on Wednesday and another 51.6 cents on Thursday to close just below the psychological $7 level at $6.905.

"Friday's rebound was a good sign if you're in the bulls' camp. Even with Wednesday and Thursday's pullback, we are still very bullish on this market," said a Washington, DC-based broker. "The two big down days late in the week were the first correction after four solid days higher. With cold weather sticking around for a little while, I would not bail on the long side yet. Our momentum indicators are still bullish and we are sticking to that. I think we will retest the highs for this move around $7.660 and continue to push above it."

The broker noted that the market will gain support from the forecasts that are calling for much of the Northeast to be pretty cold for the next two weeks. "While that can all change, we are still tracking the cold weather," he said. "With two solid weeks of cold in front of us, we'll likely have at least two more big storage withdrawal numbers to deal with. I don't think those pulls will change the overall storage supply picture, but they will affect the psychology of the market, and that is what is important here."

Traders continue to try and balance weather data suggesting a cold influx this week with a diminishing longer-term weather impact.

AccuWeather was forecasting a cold weather clipper for the Midwest over the weekend, and that clipper was expected to usher in a cold period for the entire Midwest. The forecaster said the Great Lakes would not experience a dramatic drop in temperatures until Sunday when the jet stream dives overhead.

"After a high temperature of 30 degrees on Saturday, thermometers in Chicago will only creep up to near the 20-degree mark Sunday and Monday," AccuWeather said. Highs Monday in Minneapolis are expected to reach 10 degrees, while in Chicago the high is anticipated to reach only 19, and in Detroit 22. The normal highs in Chicago and Detroit this time of year are 31, and in Minneapolis 23, AccuWeather said.

The National Weather Service in its six-to 10-day forecast Friday for the Feb. 1-5 period showed cold weather embracing most of the United States east of a line running from the Arizona-New Mexico border up through the Utah-Colorado border and into Idaho. West of the line is expected to experience seasonal temperatures with the exception of right along the California-Nevada border, which is expected to be warmer than normal.

Top traders see less weather influence and a shift in sentiment to the sell side of the ledger. "Overall, we look for the weather influence to begin to ease next week [Jan. 29-Feb. 2] with the passing of the February contract and as cold patterns become less severe seasonally," said Jim Ritterbusch of Ritterbusch and Associates. He added that the need to hedge relatively large inventories at this advanced stage of the winter heating season "could force increased commercial sales at a time when the speculative community will be becoming anxious to establish a meaningful short holding."

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