February natural gas futures on Tuesday dipped into the mid-$4.50s but rebounded to close the regular session at $4.669, up 1.9 cents from Monday's finish. Traders, some of whom had been expecting a correction to Monday's monster 24.5-cent gain, took Tuesday's strength as a sign that the bulls are a little more firmly in control.

The prompt-month contract reached a low of $4.557 during Tuesday's session, but frigid near-term and full-month forecasts proved to be enough to buoy prices. In addition to the National Weather Service, which continues to forecast widespread below-normal temperatures in its six- to 10-day and eight- to 14-day forecasts, AccuWeather.com chief long range forecaster Joe Bastardi said Tuesday he sees the frigid trend extending coast-to-coast through mid- to late January. Following record-cold December temperatures, Bastardi said this could be the coldest January for the nation since 1985 (see related story).

"The calendar says it is January, so everyone is aware that temperatures rule the roost this time of year," said a New York broker. "Traders are watching these forecasts and are calculating what prolonged stretches of cold can do to the current storage situation. Yes, we have a lot of gas still on hand, but a long stretch of cold can really deplete supplies. It is important to remember that forecasts are one thing and reality is another. If the cold does settle in as expected, higher prices will certainly be warranted."

Market technicians aren't always easily impressed, but Monday's 24.5-cent gain by the February contract to $4.650 had some thinking a major low may be in place if the market can just add about another 20 cents. "[We] see $4.832-4.877...(in the February contract) as the next big challenge for the bulls," said Brian LaRose, an analyst with United-ICAP. If the market can "decisively clear this hurdle, we would have confirmation $2.409 was a major low and that a major advance is under way. Fail to get above $4.832-4.877 from here and the bullish case would be in jeopardy once again."

Over the weekend, weather forecasters and their models predicted an arctic juggernaut to hit the U.S. in the six- to 10 and 11- to 15-day periods, and perhaps natural gas traders on IntercontinentalExchange (ICE) were clairvoyant in their trading leading up to New Year's Day. Maybe they just had good weather forecasters or perhaps good luck. Nonetheless, figures from the Commodity Futures Trading Commission show that for the week ended Dec. 28, ICE traders substantially increased their holdings of long natural gas futures and options.

In its Commitments of Traders Report long futures and options held by managed money at ICE (2,500 MMBtu per contract) increased by a whopping 52,579 to 301,516 contracts and shorts rose 11,962 to 49,786. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) rose by a minuscule 946 to 141,099 and shorts fell 2,614 to 237,218. When adjusted for contract size, long positions at both exchanges rose by 14,091 and short holdings increased by 376. For the five trading days ended Dec. 28 February futures rose 20.4 cents to $4.288.

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