After failing to fill in the chart gap created by the higher opening, natural gas futures erupted to new 16-month highs Monday, as traders bought heavily into the season’s first blast of cold weather. Including Monday’s price hike, the November contract has notched gains in four out of the last five sessions, advancing 17% off the $3.67 low Oct 7. It closed at $4.303 Monday, up 15.7 cents for the session. At 104,033, heavy estimated volume was proof that few traders elected to observe the Columbus Day holiday.

Last week the futures market managed to look past the slightly bearish storage forecast (injection of 42 Bcf) to focus on expectations for cooler weather this week. And while that run-up was more than expected, few market watchers banked on futures continuing higher. “This was the perfect set-up for a buy the rumor, sell the event move,” a Houston trader said. “I did not expect futures to press higher [Monday],” he complained. With temperatures expected to dip near or below freezing across much of the Midwest and Northeast Monday night, cash prices moved easily higher. Appalachian supplies gained 46 cents to average $4.31 at Columbia Gas and Transco Zone 6 NY prices advanced 40 cents to average $4.45.

However, strong cash market prices and weather-driven buying were not the only things goosing the natural gas futures market. Also at work Monday was sympathy with crude oil futures, which climbed 66 cents to nudge past $30 a barrel on fears that the attacks in Bali over the weekend are the work of al Qaeda and represent an escalation of Middle East tensions.

Looking ahead, market watchers who know that prices cannot continue higher in a straight-line look, for some softening Tuesday. However, because the market erupted so furiously, support is hard to call. Look for buying associated with the aforementioned chart gap down to $4.16. Beneath that, November could rebound off potential floors at $4.06 and $3.92. On the upside, resistance at the $4.44 spot high from June 2001 is as good a candidate as any for a near-term top, though traders are becoming increasingly reticent to pick a top, having been burned at least once already.

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