Continuing the recent string of back-and-forth trading, January futures, fresh off Monday’s 17.1-cent gain, declined by 17.8 cents on Tuesday to $4.059.

Some market watchers note that producers continue to be teased with the promise of higher prices, only to have that hope dashed in the next day’s trade.

“The natural gas market will not permit producers more than an occasional glimmer of optimism, despite weather forecasts that continue to show colder-than-normal temperatures in the eastern U.S. that will erode the year-on-five-year average surplus in DOE [Department of Energy] storage,” said Tim Evans, an analyst with Citi Futures Perspectives in New York. “The bulls had the upper hand in Monday’s trade, but it looks as though the bears are making an argument that the gains were overdone.”

Evans said he also believes that the market’s perception of bountiful storage supplies is keeping a lid on prices, even if the perception is incorrect.

“We continue to see potential for prices to move up, as storage is little changed from a year ago, when the market was on its way to an early January peak at $6.10, but market talk remains dominated by the idea of an ongoing production surplus despite the lack of storage data to back up that case,” he said.

Other analysts see plenty of cold weather ahead and suggest that record storage levels have been discounted for some time. “We have a good deal of winter before us, with a solid six weeks of the seven-week ‘heart of winter’ (Dec. 15 through Jan. 31) spread out before us,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. “The trend, insofar as we have one this year, is for colder, rather than warmer or moderate, readings, and we expect that we will have more cold weather over the next six weeks to eat into storage levels.

“We would not act like record levels are a surprise, here either. We have effectively been discounting record high storage levels for 30 months, on and off, and the recent decline was a correction in a market that was realigning itself after having been oversold and low.”

Data from the Commodity Futures Trading Commission (CFTC) showed that for the five trading days ended Dec. 14, funds and managed accounts, those primarily focused on the directional nature of the natural gas market and not concerned with offsetting a physical position, favored the sell side.

In its most recent Commitments of Traders Report the CFTC reported that at IntercontinentalExchange, holders of long futures and options contracts (2,500 MMBtu per contract) increased holdings by 28,285 to 238,884 contracts, and shorts fell by 5,906 to 27,900. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) added 1,648 contracts to 146,316, but short holdings jumped 12,990 to 208,720. When adjusted for contract size, long contracts rose by 8,719 and shorts added 11,513. For the five trading days ended Dec. 14, January futures fell 13.8 cents to $4.255.

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