Natural gas futures rose Friday in light, uninspired pre-holiday trading, and although futures have rebounded nicely from widely recognized $7 support, Friday’s gain was linked to surging crude oil prices.

Longer-term technical analysts are highly skeptical of natural gas liberating itself from seasonal and technical cycles which point lower. January futures finished higher by 5.3 cents to $7.190, and February advanced 5.5 cents to $7.292. February crude oil jumped $2.25 to $93.31.

Cycle adherents note that natural gas prices will often put in a preseason rally well in advance of the winter heating season as end-users buy contracts to deal with the inherent uncertainty of the magnitude and duration of winter heating requirements. “It really looks like the $8.710 high of early November was the peak of the pre-season rally, and this past week of trading has ‘bear market correction’ written all over it,” said Walter Zimmerman of United Energy.

He added that natural gas was exhibiting one of those “I’ve fallen and can’t get up” patterns because normally when gas finishes a move down it will ricochet higher and “the market doesn’t sit around and congest. What is currently going on is a pathetic excuse for a market rebound.

“I fear for any new longs here, for if this is the most power the market can launch to the upside, then it’s a bear market correction, and the only question is beyond Friday does it hit the skids Monday? Or is there another week of groveling at present price levels before it heads south again?”

Zimmerman did concede the ability of the futures market to hold nearby support levels, but was not willing to suggest that holding support was in any way a prelude to a market advance. “You can’t fault the market, for it did hold $6.920. But you are supposed to do more than hold a key level; the market is supposed to jump higher. For natural gas it usually doesn’t take more than three days to carve out a bottom and move higher. Now we are three days late. The $6.910 happened Monday, and here we are Friday and the market still has shown no signs of life.”

Should Zimmerman’s analysis prove correct, market bears may enjoy hefty gains. “The normal downmove from a preseason rally is about 45%, and what we have so far is just over 20%. The shallowest seasonal retreat was back in 1993 when it fell 23.8%. A normal correction would take spot futures down to $4.79,” he said.

He pointed out that not only is there the likelihood of bearish seasonal factors, but also very bearish time-cycle factors with major 2.5-, three- and four-year cycles looking to bottom in the first quarter of 2008. “With those kind of cycles at work it does not seem like a year for a shallow decline, more likely a deeper one. The stars are starting to come into alignment,” posited Zimmerman.

On a more fundamental note, the Henry Hub market has been unable to respond to meteoric advances in citygate prices. “All this time when the market has been unable to rebound, we have seen citygate prices just go nuts on the upside. And in the past whenever you have seen a citygate price spike like that, there has been some action at the Henry Hub.”

According to NGI’s Daily Gas Price Index, gas traded Monday, Dec. 17, for delivery Tuesday at Algonquin citygates, jumped $2.790 to $20.080, and similar deliveries to Transco Zone 6 surged $1.09 to $21.180. January natural gas futures deliverable at the Henry Hub rose 1 cent to $7.035 in trading Dec. 17.

“So it’s all the more remarkable that Nymex prices haven’t responded higher,” Zimmerman said. “They have held key support, but if this is what happens when citygate prices spike to the upside, what is going to happen when they begin to ease off when warmer weather comes?”

It does not bode well for Henry Hub prices when spectacular citygate rallies have not been followed with a Henry Hub advance, he added.

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