Despite the lack of trading volume due to the shortened week in between holidays, January natural gas futures on Tuesday rallied 10.4 cents on the day to expire at $4.216. February futures, which is the new prompt-month contract, added 13.3 cents to close at $4.288.

"We're not going to do much this week. We're seeing very light trading," said Ed Kennedy, a broker with Hencorp Futures. "As of noon EST Tuesday, the spot and first forward contracts haven't even traded 25,000 contracts, so it is pretty dead out there. I think it is a combination of a lot of 'out of offices' with a lot of folks already being out of their positions. People like to take really long weekends this time of year...I guess the rest of us should have as well."

Looking past the holidays, Kennedy said weather will still decide the market's next move, noting that the picture for January appears to be changing. "We've been seeing a lot of weakness and pressing on the short side of the market because the long-range forecast for January was for above-normal temperatures. Now, with January right around the corner, the forecasters are moderating their expectations. As an example, the National Weather Service is now calling for below-normal temperatures for the entire Lower 48 during the eight- to 14-day period, which is a departure from what they had been expecting for January just a short time ago."

Looking more near-term, the broker noted that everyone is expecting a large withdrawal in Thursday's storage report for the week ending Dec. 24, which is to be expected given the frigid cold of the last few weeks in the eastern half of the country.

"If we return to below-normal temps after the expected thaw during the first week of January, then the $3.850 to $4.650 trading range could be in trouble on the downside," he told NGI. "If it does return to cold very quickly, that could surprise some withdrawal schedules that are out there."

At current price levels analysts see the market in something of a balance between current weather-driven demands and aggressive production. "This market seems to have reached some mystical equilibrium between the promise of winter, continuing plentiful daily supplies from shale gas, higher-than-normal storage and the fact that every bearish factor has had a say at least a dozen times over the last two years," said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. "It is probably closer to 100 times over that period because the influences are high storage, high production and lagging industrial consumption. Those factors reduced prices from $13.69 in July 2008."

He added that traders seem to feel that a $10 penalty is penance enough for this market's oversupply. "Space heating needs, on their own, may be sufficient to warrant a price near $4," Beutel said. "When one takes into account -- which we do not believe this market has, yet -- that industrial demand should improve if the economy does, one can paint even higher figures into future worksheets."

The most recent data from the Commodity Futures Trading Commission shows a large split by the managed money components at IntercontinentalExchange (ICE) and the New York Mercantile Exchange (Nymex). According to the Commitments of Traders Report for Dec. 21, which was released Monday due to the Christmas holiday, ICE traders showed a balanced approach to the long and short side of the market, but Nymex traders heavily favored the sell side.

Long futures and options at ICE (2,500 MMBtu per contract) for the five trading days ended Dec. 21 rose 10,053 to 248,937 contracts and shorts added 9,924 to 37,824. At Nymex, however, long futures and options (10,000 MMBtu per contract) fell by 6,162 to 140,154 contracts and short holdings mushroomed by 31,111 to 239,832. When adjusted for contract size, total long positions at both exchanges fell 3,648 and shorts jumped 33,952. For the five trading days ended Dec. 21 January futures fell 19.6 cents to $4.059.

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