After dropping 20 cents lower in Tuesday morning trade as traders acknowledged high interest in hedge selling by producers and other physical market longs, the December natural gas futures contract rallied in the afternoon to close virtually unchanged from Monday. The prompt-month contract ended up closing Tuesday's regular session at $4.264, down seven-tenths of a penny from Monday.

In early morning trading Tuesday it appeared that traders were rethinking the significant gains recorded on Friday and Monday. The December contract recorded a trade at $4.115 before the 9 a.m. EST opening of the regular session, but things moved higher from there.

"The market is obviously reacting to the fact that winter is coming," said Steve Blair, a broker with Rafferty Technical Research in New York. "Regardless of how much gas we have in storage right now, colder temps are certainly going to reduce the inventories. Part of the reason the market rebounded back up to the mid-$4.20s is because there was a fair amount of open interest up there with the expiration of options on the day."

Looking to the upside, Blair said futures currently sit near an important pivot point. "I think $4.380 is a very crucial resistance area. It is a big pivot point where the market broke down from back in August. First we have to get through $4.270, which has proven to be providing some resistance of its own."

Some risk managers see significant pent-up selling awaiting market rallies. "We still believe there is a significant amount of pressure for producers to have to hedge their natural gas on any significant rally," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "On a trading basis we have probed the long side for speculators and are anxiously awaiting more of a rally to add to our short positions for hedgers. We still believe there is a good chance of a short-covering rally that could push the forward curve into the high $4.00, low $5.00 range."

Short-term traders sensed that Monday's advance might lead to further gains. "The market closed over $4.24 and from there the next objective is $4.35 to $4.36 and from there into the $4.40s. I like the market here," said a New York floor trader.

"It feels like it wants to go higher. Traders are looking for support in the $4.11 to $4.13 area." He cautioned that "if you see the market fall below that, I think you will see some profit-taking that will send the market below $4."

Traders, at least those that are still around on Wednesday, will be eagerly awaiting fresh natural gas storage inventory data from the Energy Information Administration. The agency is releasing its report for the week ending Nov. 19 a day early at noon EST due to the Thanksgiving holidays on Thursday and Friday.

Analysts see three different responses to Wednesday's release of inventory data. "If we get another build, even of just 1 Bcf, we will have a new record, which is what the headlines will trumpet. One group would react to that," contends Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm.

"Another group would be keen to compare this year to previous years," he added. "We had a build last year, but the five-year average is a drawdown of almost 14 (13.8) Bcf. The relative comparisons would drive them. And the third set of possible responses will come from those who could see any draw at all as a sign that withdrawal season has begun, that a page has turned and that forecasts for colder weather will start to boost prices."

Citi Futures Perspective analyst Tim Evans said he is expecting the EIA to reveal a 7 Bcf withdrawal, which would be bullish when compared to both the five-year average and the date-adjusted 5 Bcf addition for the similar week last year.

Blair said the storage report poses a lot of questions for the market. "Last week we got the storage number, which was lower than expected, but futures dropped. We've actually seen that the last couple of weeks, where the market reacts counter to the popular consensus on the storage number. Under these circumstances, it's hard to get a good feel for Wednesday's release."

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