Even after exploring lower price levels in early Friday trade, January natural gas futures were able to finish on a positive note as traders appeared unable to move past the fact that much of the eastern U.S. is starting to resemble the conditions found inside an icebox. The prompt-month contract tacked on six-tenths of a cent Friday to close at $4.349, which is down 3.9 cents from the previous Wednesday's close.

Despite sitting on plump storage inventories and Friday's news from Baker Hughes that the number of rigs searching for U.S. gas for the week ending Dec. 3 increased by eight to 961, up 213 rigs from a year ago (see related story), colder temperatures, and the fear that they might stay cold, appears to be boosting prices.

"I'm pretty positive on this market recently," said Tom Saal, a broker with Hencorp Futures LC in Miami. "I've been saying for a while now that I thought gas was ready for a run higher. The fuel behind all of this is the speculators remaining still very net short futures contracts. The fundamental part is the cold weather. At least during the early part of the winter heating season, storage operators could be apprehensive about pulling a lot of gas out of storage. If the winter proves to be a repeat of last year's deep freeze, the operators want to make sure they have the inventories to go the distance. This hoarding of gas is putting some upward price pressure on flowing gas."

Looking further down the road, Saal said a $5 handle could be on the horizon. "In analyzing Market Profile, I'm looking for a price in the $5.250 area by the end of the year," he told NGI. "I don't know if it is sustainable, but it is a target nonetheless."

Weather forecasts showed little change in the last 24 hours, and the outlook for below-normal temperatures in eastern energy markets is still on the front burner.

"The easier parts of the two-week forecast include the warm Southwest and even California along with the cold eastern third of the U.S," said Matt Rogers, president of Commodity Weather Group, in a note to clients. From there the forecast gets trickier. "The more difficult part seems to be at the boundary in between. Areas like the central to western Midwest, Texas, Plains and up into Calgary are on the battle lines between different air mass influences (Eastern cold trough and Southwestern warm ridge) and could continue to oscillate back and forth. While the models are mainly holding back, there is still concern that strong cold air accumulating in northwest Canada could advance into Calgary. And we are also watching a day 10-11 East winter storm."

Weather was taking front stage, but the release of employment data from the Labor Department also got traders' attention. Expectations were that November non-farm payrolls increased by 168,000, adding to October's gains of 151,000. The actual figure, however, came in at a disappointing gain of 39,000. The unemployment rate also increased to 9.8%, up sharply from October's 9.6%. December Standard and Poor's Stock Index Futures dropped seven points following the release of the figures.

Top analysts are circumspect as to whether forecast cold weather will have much of a positive impact on prices. "Overall, we are viewing the current supply surplus as substantial and capable of weighing on first quarter futures contracts early next year, even within the context of a colder-than-normal winter," said Jim Ritterbusch of Ritterbusch and Associates. "The precedent for such a development was established last year as nearby futures fell by more than 25% during the first quarter, even amidst a cold winter that sharply reduced a huge supply overhang to only around 180 Bcf."

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