January natural gas kept the week’s upward momentum rolling Friday from the get-go. After opening at $13.150, the prompt month climbed slowly until approximately 1 p.m. EST, when it exploded higher to settle at $13.931, up 90.4 cents on the day.

From Tuesday to Friday, January futures soared $2.297 as a cold front swept through the Midwest and East. The fact that the prompt month futures price is near $14 and December has only just begun is beginning to concern some traders, who wonder what could be coming next.

“We had 85-cent, 44-cent and 90-cent up days on three consecutive regular sessions, which is obviously very bullish,” said Nymex local Eric Bolling (known as RBI in the natural gas futures pit because of his stint with the Pittsburgh Pirates). “On a week-to-week basis, the storage injections always seemed a little low and now we are starting to draw and it feels like January is really poised at maybe taking out some of the highs.”

Bolling, who spends a lot of time watching the calendar spreads, said the March-April spread is always a good indicator of the winter ahead of it. “That spread is just exploding,” he said. “March-April traded about $1.55 on Monday. On Friday, it settled at about $2.77. That’s just the differential between March and April, which represents the end of the winter strip and the beginning of the summer strip. The large difference basically tells you that people are very concerned about the winter. When the March-April spread is not bullish anymore, that will be my indicator to stop being bullish the market.”

The local trader said this market is really all about the weather on a week-to-week basis right now. “Going into December trading almost $14 is pretty bullish,” Bolling said. “We are starting from a high price, so we really have some upside if the weather going forward is bullish. Just like I said the week before, my gut feeling is still higher. I still think $15-20 is not out of the question if we have a severe winter. If the winter turns out to be not that cold, then things would have the tendency to fall apart pretty quickly.”

One analyst said the rallies in the last couple of days seem to run almost like clockwork. “Over the last few sessions, it seems that you could almost set your clock for the afternoon rally,” said Tim Evans, an analyst with IFR Energy Services. “It really seems the market kicks into another gear at about 1 p.m. EST into the close. I think fund short-covering is certainly a factor here. The funds have a tendency to trade most heavily around the opening and into the close, so everyone around the natural gas ring anticipates fund-buying on the close. Well, guess what, traders will buy it at 1-2 p.m. ahead of the fund push and then sell to them on the close for a nice 20-to 50-cent profit on an hour’s risk. That’s a pretty nice rate of return.”

Evans said the short version of the story behind why prices are going up is the funds are short and it is cold outside. “Fundamentally there is no physical shortage here and I don’t forsee one developing,” he said. “Even though storage is 6.3% above its five-year average and the Baker Hughes drilling rig count is 48% above its five-year average, those factors are being overlooked for the moment.

“In the short run, there is no law of the markets that says we couldn’t see $14.75 again, nor is there any rule that we couldn’t get back to January’s life-of-contract high at $15.60. However, you have to ask, what are we really doing up here? We are destroying more physical demand. We have not seen demand growth since 2000 because the price has been too bloody high for the last five years and once in a while we are going to have to take our foot off of the consumer’s throat long enough to see if he is still breathing.”

Evans said that in this market, one strategy would be to walk sell-stops up behind the market to catch it when it rolls over to the downside. “I am certainly still looking to play this thing from the short side in the direction of where I see the longer-term fundamentals, which include the storage surplus, active drilling reports and a long-range weather forecast calling for above normal temperatures in the western U.S. from January through March,” he said. “Those factors have the potential to drive the price hard to the downside.”

However, natural gas bulls can find some encouragement in what appears to be further evidence that this winter may be more intense than previously thought in some regions. Tom Skilling, chief meteorologist at WGNTV.com, reported some sobering observations to the start of winter made by Tom MacPhail, veteran Alaska meteorologist and aviation forecaster at the National Weather Service’s Anchorage Forecast Office.

MacPhail has noticed the accumulation of what is known as hoar frost — supercooled water droplets that coat trees, vegetation and other outdoor objects in a shimmering covering of ice crystals. Hoar frost forms with some regularity in bitterly cold environments with temperatures well below freezing, and those occurrences have led MacPhail to observe that “for the first time in the past few years, southern Alaska is having a truly cold start to their winter; more like the kind of winters enjoyed in the early ’80s. It has been consistently below freezing since mid-October with the exception of one brief warm-up ahead of a storm in the middle of November.” This cold start could be an indicator of what the Lower 48 states are in for.

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