March natural gas futures eased Tuesday as traders elected to discount both supportive weather reports and sharply higher oil prices caused by strife in North Africa and the Middle East. March fell 0.9 cent to $3.867 and April added 0.1 cent to $3.907. March crude oil bounded higher $7.37 to $93.57/bbl.

Should the spot contract fall much further, traders and analysts looking to play the market from the long side will revisit their strategies. "On a trade basis, it has been our thought that the gas market was going to continue to trade in the high $3 to high $4 range in the weeks to come," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. DeVooght has been thinking "that the gas market has been building a base and was mending. But last week's activity (down sharply when most commodities were strong) has us a little concerned and wishing we would have been a more aggressive seller when we were in the high $4s a couple weeks ago."

DeVooght admits that he is not entirely discounting the bullish argument and is "not throwing in the towel on our thought that the gas market is establishing a base, but we will pull back on making any bullish bets if the $3.75-3.80 level is broken on the spot contract. In the meantime we are on the bottom side of the range, so for speculators and end-users we will probe the long side. We will utilize short puts and long contracts."

Trading accounts are advised to stay short April $4.05 put options and end-users should stand aside. Producers and those with exposure to lower prices are advised to continue to hold an April-October strip consisting of long $4.50 put options held against the sale of $5.50 call options at even money for 10% of their physical exposure.

Government figures show that directional traders overwhelmingly reduced long positions and increased short holdings for the five trading days ended Feb. 15. The Commodity Futures Trading Commission in its weekly Commitments of Traders Report showed that managed money at IntercontinentalExchange increased long futures and options (2,500 MMBtu per contract) by 12,939 to 387,364 and added to short futures and options by 4,129 contracts to 34,046. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) fell by 9,934 to 137,684 and short holdings grew by 22,302 to 282,001. When adjusted for contract size long futures and options at both exchanges fell by 6,699 and shorts jumped by 23,334. For the five trading days ended Feb. 15 March futures fell 6.4 cents to $3.976.

Bulls couldn't get a break Monday even though forecasters are calling for cold to migrate into the Upper Midwest in the 11- to 15-day period, although it will not be as severe as in January. Commodity Weather Group of Bethesda, MD, forecasts below- to much-below-normal temperatures north of a sinuous line from northern Massachusetts to southern Illinois to southern Wyoming to central California.

"While the day-to-day details are definitely challenging, we do see a big picture consistent view with warmth in the South, cold in the North to West, and variable conditions for the eastern Midwest to East Coast with varying storm tracks," said Matt Rogers, president of the firm. "Sometimes the storm tracks take a more inland route that moves the East Coast much warmer and other times the tracks are suppressed due to enough cold air traveling across Southeastern Canada. This variability is difficult to gauge per each event, but the big picture continues to favor the most consistent cold farther west and north. The South should be mostly protected from the cold."

Analysts see little spillover from the turbulence in North Africa and the Middle East and suggest that near-term weather conditions are the dominant price driver.

"This market remains insulated from the strength in the petroleum complex given its largely domestic nature. However, prices are advancing moderately on weekend updates to the temperature views that offered some colder outlooks," said Jim Ritterbusch of Ritterbusch and Associates. "Both the six- to 10-day and the eight- to 14-day views are generally showing below-normal temps moving down into the Midwest and northern tier states. With this extended cold view that stretches through the first week of March, a couple of smaller-than-normal storage withdrawals could prove short-lived."

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