In response to a stunningly bullish weather forecast for the last week of December, natural gas futures shot higher Monday morning as short traders elected to take their profits and head for the exits. As one might expect, the January contract received the biggest buying boost, etching a 17.9-cent advance to close at $2.747, its highest settle since becoming the prompt contract late last month.

According to Maryland-based Earth Satellite Corporation, an Arctic air mass is expected to move into the Midwest and Northeast by the end of next week, potentially dropping temperature readings to levels on par with the record-setting string of chilly temps registered last December. “In the 11- to 15-day time period, we are expecting a ridge of high pressure in the west and a low pressure trough in the East. Further out to the East, a ridge is likely to form that will be similar to the set-up we saw last December,” said forecaster Paul Markert of EarthSat.

And while the ridge off to the East will not have the same impact as the “Greenland Blocking Ridge” that can bring a sustained period of much-below normal temperatures to the Eastern U.S., it is expected to facilitate the arrival of dramatically cooler air. “We are looking for temperatures to be three to seven degrees below normal in Chicago on day 10. By day 11, that air will be moving into New York,” he continued.

However, traders were surprised by the stark contrast between the EarthSat forecast released Monday morning and National Weather Service forecast released yesterday afternoon. According to the eight- to 14-day outlook from the NWS, above-normal temperatures are predicted over a wide swath of the U.S. from Maine and Florida clear across the nation to a line drawn from Seattle to West Texas. To the West of the line, normal temperature readings are expected.

After elevating higher throughout the most of the regular trading session that runs each day from 10 to 2:30 (EST), the January contract was trimming gains in overnight access trading as traders reacted to the lack of agreement between the private and governmental forecasting agencies. At 7:10 p.m. EST the January contract was at $2.705, down 4.2 cents from its closing price.

Contributing to the rally yesterday was short-covering by market bears, many of which who have watched their gains accumulate as prices have spiraled lower, a Houston-based risk manager told NGI. “Why not lock in your gains now. Chances are you’ve made a pretty-penny selling this thing. The end of the year is just around the corner. Even if you thought it was going to turn lower, you’d be foolish not to cash out now,” he said.

On the other hand, there are market-watchers that continue to endorse a sell-the-rally mentality. For them the rationale is easy. Any weather-related spike will be short-lived. Demand is still in question and storage — at 3,128 Bcf — is just off all-time highs.

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