Despite the current freeze gripping much of the eastern half of the United States, recent near-term forecasts of moderating temperatures helped ease natural gas futures values lower on Tuesday as the January contract reached a low of $4.250 before closing the regular session at $4.255, down 16.5 cents from Monday's regular session close.

While most market watchers believe futures values don't have much further to fall, some experts note that they wouldn't be surprised by anything anymore in natural gas.

"Some of the weather forecasts have moderated a little bit in terms of the Northeast," said Steve Blair, a broker with Rafferty Technical Research in New York. "Even looking at the National Weather Service's six- to 10-day or eight- to 14-day forecasts, the real dark blue on the map is on the southern part of the East Coast, not up here in the Northeast where the gas demand is the thickest."

Blair said he was a little surprised that prices have come back down. "The $4.660 to $4.680 area is a major resistance area that we've tested a couple of times over the last week and a half. On Monday $4.340 was a pretty good support area, but we broke below it on Tuesday," he said. "I would hope that the market would stabilize right around here, but I wouldn't be surprised if we've had a resetting of short positions on this recent trip lower. With this cold weather I wouldn't think we'd fall below $4, but in this market, nothing really knocks my socks off anymore."

Some of the top analysts saw Monday's 0.3-cent gain to $4.420 as indicating a resilient market. "Natural gas prices were curiously higher [Monday], although the gains were fractional and hardly worth getting excited about," observed Peter Beutel, president of Cameron Hanover. "What might have been worth getting excited about, though [Monday], was this market's ability to move higher at all. After disappointing forecast changes late last week, it looked like we might return this week to a new set of warmer forecasts. But as it turned out, the forecasts remain one of the more bullish aspects of this market."

The current plump level of inventories may take a heavy hit in this week's natural gas inventory report. "[I]t might only take a couple of heavy pulls to change the psychology of this market. This week it seems that we will have an especially big drawdown from a year ago to try to match," said Beutel. "But if this week's draw comes anywhere near last year's drawdown, it would be a very bullish development. Last year, for this week, we had a draw of 207 Bcf, according to our records from last year."

The most recent data from the Commodity Futures Trading Commission shows that with the onset of recent brutal cold, funds and managed accounts headed for the long side and bailed on a number of short positions.

The Dec. 7 Commitments of Traders Report showed the managed money component of open interest in natural gas futures and options at IntercontinentalExchange decreased holdings of long futures and options (2,500 MMBtu per contract) by 4,168 to 210,599 and short positions fell by 22,049 to 33,806. At the New York Mercantile Exchange long holdings of futures and options (10,000 MMBtu per contract) rose by 8,928 to 144,668 and short contracts declined by 8,802 to 195,730.

When adjusted for contract size, long positions at both exchanges rose by 7,886 and short contracts fell by 14,314. For the five trading days ended Dec. 7 January futures jumped 21.3 cents to $4.393.

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