February natural gas futures made it two days in a row of double-digit losses as traders were forced to factor in weather forecasts based on computer model runs showing less agreement than previously seen and concerted technical selling. At the close February tumbled 10.7 cents to $4.473 and March shed 10.8 cents to $4.490. March crude oil also continued its losing ways, dropping $1.68 to $86.19/bbl.

"I think some traders are leaning on the market and pushing it lower. It looks like we have room down to the $4.32 area," said a New York floor trader.

According to the trader, significant support points in the February contract at $4.55 and $4.46 were taken out, and "now $4.32 is the target area. Today looks like broad-based technical selling. I think we will come off the next day or two, down to $4.25 and maybe we'll bounce off that."

Analysts see continued cold but an indifferent futures market. "...[A]lthough we still see above-average heating demand overall, with above-average storage withdrawals still to come, the futures market may not be impressed...as the most intense cold of the recent cycle has now passed, and the storage withdrawals for Thursday's DOE storage report will be both markedly lower than the 243 Bcf draw in the prior week and much closer to the 152 Bcf five-year average benchmark," said Tim Evans of Citi Futures Perspective. "We continue to see the natural gas market as relatively cheap -- still at the bottom of the five-year range for this point of the season -- but what's cheap may have a chance to get a little cheaper before the larger supportive trend of a declining storage surplus reasserts itself."

Overnight weather model runs showed a modest warming. MDA EarthSat in its 11-15 day forecast shows below-normal temperatures east of a sinuous line from North Dakota to Tennessee to southern Mississippi. "Changes were generally to the warmer direction in this time frame as some models are showing signs of a less stable PNA [Pacific North America] pattern, allowing for an increase in variability. The EPO [Eastern Pacific Oscillation] signal still remains strong per most of the models, however, which should keep the trough across the eastern third to half of the nation. The forecast leans a bit more toward the American ensembles instead of the European as they have been handling the cold pattern better of late."

According to Walter Zimmerman of United-ICAP, the longer-term trend as identified by wave counts is higher, and his figures show "even in the bearish case, natgas will test the $5.500 area. In the bullish case it is headed to the $6.700-6.900 zone." As bearish as the prevailing sentiment may be, he contends that to move higher the market "only needs a large population of uneasy shorts."

If the latest government figures are any indication, however, the shorts aren't getting any uneasier. In the most recent Commitments of Traders Report by the Commodity Futures Trading Commission (CFTC) managed money favored the short side of the market by more than two to one.

The CFTC reported for the five trading days ended Jan. 18, holders of long futures and options (2,500 MMBtu per contract) at IntercontinentalExchange increased positions by 41,219 to 457,108, and the number of short contracts rose by a minuscule 1,752 to 44,963. At the New York Mercantile Exchange traders decreased the number of long futures and options (10,000 MMBtu per contract) by 1,795 to 151,673 and short futures and options jumped by 22,432 to 237,197. When adjusted for contract size, long positions rose by 8,510 but shorts added 22,870. For the five trading days ended Jan. 18 February futures rose 5.6 cents to $4.481.

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