With most people within the industry still focused on the Iran situation, its impact on the petroleum markets and the trickle-down effect on natural gas futures, the May natural gas contract recorded a high of $7.790 and a low of $7.550 before closing at $7.671, down 5.9 cents from Friday.

Joining the tightly wound international situation as news for the week is more 2007 Atlantic hurricane season forecast fodder as well as the expectation that another cold snap is expected in a number of regions of the country just prior to Easter.

AccuWeather.com meteorologist Joe Bastardi warned Monday that it’s not the number of storms in the hurricane season that counts, it’s the intensity of the storms that really matter. He noted that a number of locations along the Gulf Coast could be in danger of receiving landfall strikes this summer (see related story). While some traders digested Bastardi’s second commentary on the 2007 hurricane outlook in the last week, most were looking forward to seeing the 2007 Atlantic hurricane forecast expected to be released Tuesday by William Gray and Philip Klotzbach of the Colorado State University hurricane forecast team.

Weather bulls can take some comfort in a pre-Easter cold incursion expected to drop temperatures across major energy markets. AccuWeather reports arctic air Wednesday will follow a band of rain and thunderstorms into the Northeast with the Severe Weather Center reporting that locally strong storms could develop south of the Mason-Dixon line, including Washington, DC. “The upcoming cold blast could result in Easter being just as cold, if not colder, than last Christmas. Brisk winds will add to the chill across the region, while snow showers will create a more wintry feel across the Northeast interior,” the forecaster said.

Citigroup analyst Tim Evans said that while there does appear to be some cold entering the East, the real market-moving indicator can be derived by recent fund activity. “The key factors for this market are the heavy fund short positions confirmed in Friday’s CFTC [Commodity Futures Trading Commission] report as potential fuel for short-covering and summer forecasts for heat and hurricane,” he said. “We think the market is mostly just poking about for vulnerability here, and a possible fundamental excuse (higher petroleum prices?) for stampeding the bears.”

May crude futures held onto past gains Monday (plus 7 cents to close at $65.94/bbl) as the standoff between Britain and Iran remains full of tension. “So the markets are holding on to recent gains as stubbornly as the Iranians are holding onto the recent hostages — that’s what they are, aren’t they? — with charts as technically overbought as they can get,” commented Jay Levine, a broker with enerjay LLC. “That doesn’t necessarily mean we’ve seen the top — not if further escalation or threats grow worse — but it probably helps. It certainly does highlight what could go wrong, even before it goes wrong, and we’re not even remotely close to the uptick in the summer driving season mostly because we’ve barely begun spring. Spring has sprung and now the market is waiting for the British sailors to be sprung before it makes its next move.”

For natural gas support, Levine sees $7.500, followed by $7.375, $7.035 and then $6.750. On the upside, Levine sees resistance lurking at $7.750 to $7.850, then $8.055, $8.300 and finally $8.600.

In spite of only a limited physical link between crude oil, products and natural gas, traders anticipate that near-term developments in the Iran hostage crisis will have a direct bearing on the near-term direction of natural gas and petroleum products prices.

“Iran’s British troop capture is getting all the press and we would anticipate the gas market to trade in lockstep with the complex at this time,” said Mike DeVooght, president of DEVO Capital, a Colorado trading and risk management firm.

Nonetheless, DeVooght does not see natural gas futures prices headed higher. “On a trading basis we still have a negative bias but would not be very aggressive at this time. We are just content to hold our light positions and await future developments,” he said in a note to clients.

Currently DeVooght suggests that both trading accounts and end-users should stand aside. He thinks producers should continue to hold short a May/October strip at $8.00 for 25% of production, hold short a summer strip established earlier at $9.00 for 50% of production, and stay short winter 2007-2008 contracts at $9 for 15% of production.

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