Building off Friday's impressive gains, December natural gas futures on Monday continued to test the upside as traders braced for a cold spell that is expected to affect much of the eastern half of the United States. The prompt-month contract reached a high of $4.293 before closing out the regular session at $4.271, up 10.7 cents from Friday's finish.

Some aren't so sure that the forecasted burst of cold really can support the recent hike in prices.

"While there is still significant cold upcoming in the week ending Dec. 3, it doesn't look quite as strong as in Friday's outlook," said Tim Evans, an analyst with Citi Futures Perspective in New York. "We also note that while below-normal readings are still expected in the 11- to 15-day forecast period, the normal represented by this comparison is the 30-year statistical norm, and that temperatures for the week ending Dec. 10 don't look either as cold as in the same week last year or the five-year average."

Despite the somewhat weakening cold forecast, the analyst said prices would still likely test higher values in the near term. "On balance we still see room for prices to probe the upside to perhaps the $4.50-4.75 area, but a colder year-on-five-year average comparison would help assure that outcome," Evans said.

Forecasters are expecting cold temperatures mixed with days of warmth. "The latest six- to 10-day is a transition period between the departing short-range cold push and the arriving 11- to -15-day next round. In between, a few days of warming are possible, particularly in the Midwest and Plains," predicted Matt Rogers, president of Commodity Weather Group, a Bethesda, MD forecasting company.

He noted that the East Coast is likely to see at least one day of warming as well, and "the models continue in good agreement on the widespread 11- to 15-day cooling pattern with the usual differences [American (weather models) colder than the European ensembles]. But the impressive high-latitude blocking pattern offers cold chances to nearly the entire nation at various points during the period. The details may unfortunately fluctuate in the days ahead."

Directional traders as of early last week exited both long and short positions in approximate equal numbers, according to government reports. The Commodity Futures Trading Commission in its weekly Commitments of Traders Report showed that managed money as of Nov. 16 reduced both long and short holdings of natural gas futures and options.

At IntercontinentalExchange long futures and options (2,500 MMBtu per contract) fell by 19,210 contracts to 222,994 and short holdings declined by a whopping 69,140 to 102,655. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) fell by 4,144 to 130,467 contracts and shorts rose by 6,582 to 198,617. When adjusted for contract size long futures and options at both exchanges fell by 8,947 and short holdings dropped by 10,703. For the five trading days ended Nov. 16, December futures fell 39.2 cents to $3.818.

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