Rebounding from last Friday's dip below $4, January natural gas futures surged higher Monday as market bulls were supported with forecasts that were looking chillier than they did just three days earlier. The prompt-month contract treaded between $4.013 and $4.248 before settling near the peak at $4.237, up 17.1 cents from Friday's finish.
The January contract opened the day approximately 6 cents higher at $4.13 as traders readjusted to compensate for a change to cooler temperatures in near-term weather forecasts. Weather models have turned more frigid in the six- to 10-day period for key energy markets. In its morning forecast MDA EarthSat said, "This period has turned colder since late last week, with considerably more much-below coverage than anticipated. A storm system that could deliver a white Christmas to many across the Midwest and East will be departing early, with the strong cold air mass settling southward in its wake."
One New York broker reinforced the importance of weather to the market this time of year. "During the winter, weather is still king in the natural gas arena," he said. "Of course, the market will respond to dips in storage -- or the lack thereof -- during the winter heating season, but traders really feed off the six- to 10-day, eight- to 14-day and 11- to 15-day forecasts from various public and private forecasters. Currently it looks like the eastern half of the country might be in for some pretty cold temps for a while, which is why we saw Monday's uptick."
The MDA forecast shows below-normal temperatures during the six- to 10-day period south and east of a sinuous arc from Maine to North Dakota and south to Louisiana. Above-normal temperatures are limited to small portions of New Mexico and Arizona.
"Most guidance is highly supportive of this initial cold shot, though the details thereafter differ between models," the forecasting firm said. "Another storm system should take shape near Texas by the last couple days of the period, though the track is uncertain hereafter. Models vary out West, with our forecast leaning toward the cooler Euro models."
Risk managers are looking for selling opportunities, albeit at higher levels. "We were able to bounce off the $4 level late in the week, [and] the storage number was pretty much inline with market expectations and failed to be a market mover," observed Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.
DeVooght noted that fundamental factors continue to be a burden for the bulls, and "on a trading basis we were looking for a rally into high $4s to low $5 level to reestablish our producer hedges that expired. Unfortunately we did not reach these levels on this last rally. We will continue to monitor the market for an attractive sell opportunity."
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