While much of the East Coast was still digging out from Sunday's blizzard, as evidenced by some cash point averages jumping several dollars for Tuesday delivery, natural gas futures traders on Monday were focusing on the future, which is why the January contract -- a day ahead of expiration -- dipped below $4 for the third time in two weeks before rallying to close at $4.112, up 2.9 cents from last Thursday's finish.

Unlike the cash market, which is concerned with the immediate term (see related story), the futures market is more interested in factors that are expected to be present in January, February and March. Subtle changes in the mid-term temperature forecasts continue to dictate price fluctuations, and it appears that some recent outlooks are not calling for temperatures going forward to be as cold as once expected.

"The natural gas market has come under renewed selling pressure, with traders continuing to react to any indication that temperatures may moderate from their recent cold, although we continue to see projected degree day accumulations that will exceed five-year average levels," said Tim Evans, an analyst with Citi Futures Perspective in New York. "The year-on-five-year storage surplus looks set to decline weekly through at least the week ending Jan. 14 based on the latest runs. We remain surprised that prices are virtually unchanged from the end of October, when the surplus has been steadily declining since then, with a further drop likely."

Weather models in the six- to 10-day period paint a complex picture. Commodity Weather Group in its morning energy forecast called for above-normal temperatures east of a sinuous line from northern Michigan to Ohio to South Carolina. Below-normal temperatures are concentrated in California, the desert Southwest and the southern Rockies.

"The upcoming two weeks appear quite messy as a variable pattern dominates much of the U.S. and even the western half of southern Canada. We see evidence of a heavier La Nina touch with more activity from the Pacific, but we also see signs of rebuilding blocking that will also feed more cold air into areas that should see less of it in a La Nina winter (like the South)," said Matt Rogers, president of the forecasting firm. "Timing is also a big question again [Monday] as the American and Canadian ensembles are moving quickly to return Alaska/Bering Sea blocking back into place, while the European ensembles are on a more gradual timetable (although still moving in the same direction)."

Analysts see the market bound by heavy short-term demand offset by plump supply. Supportive weekly inventory figures seem unable to provide much impetus to the bullish cause.

"The market was able to shrug off the seemingly supportive storage withdrawal late last week and will likely do the same this week with the assistance of an oversupplied market that will be acquiring greater focus amidst any additional warming in the short-term temperature views," said Jim Ritterbusch of Ritterbusch and Associates. "[D]espite an unexpectedly cold December that could draw on supply by as much as 675-700 Bcf this month, any sustainable price rallies will continue to be throttled by forecasts for a renewed record supply as the winter period proceeds.

"However, as a large supply continues to clash with a strong short-term demand factor, the continued 'seesaw' or wide-swinging sideways trade would appear likely," he added. "We continue to view price parameters per nearby futures between about $3.85 and 4.35 as likely to contain price action well into next month."

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