After reaching a 14-month high at $8.820, the March natural gas futures contract on Friday retraced some of Thursday’s gains to finish up the week at $8.660, down 11.2 cents on the day but 35.9 cents higher than the previous week’s close.

Traders on Friday had their hands full as they processed colder forecasts and reports that another hedge fund had lost big. Saracen Energy Partners LP became the latest company to take a major wrong turn in gas futures, allegedly losing more than $400 million in wrong-way spread trades. According to reports, the fund was unwinding its “unfavorable positions” during the week (see related story).

While some energy traders were pinning the market’s spike during the week to the liquidation of Saracen’s positions, others said they still believe most of the week’s run-up was based on colder weather. “I don’t know how much the whole Saracen thing had to do with the price increase,” said Steve Blair, a broker with Rafferty Technical Research in New York. “Amaranth got caught super-short on contracts. When the market starts to go one way and you are trying to get out, the market knows that so they force the issue. Saracen allegedly got caught on spread positions, which is a somewhat different story. The market is less likely to be pushed in one direction because it is a spread position. Saracen was allegedly caught on the March-April and October-January spreads. That would make sense because those are the two seasonal spreads that people make plays on.

“Instead, I think most of the strength we saw during the week was weather-related. I think we saw a bunch of short-covering because a lot of people thought February was going to exhibit widely above-normal temperatures, but it is not turning out that way. It is pretty cold in a number of regions that matter.”

Some of the top traders note that the rise in natural gas futures last week was accompanied by a commensurate gain in crude oil futures, but natural gas bulls are getting some additional bang for the buck. “As this week has proceeded, forecasts earlier in the week for a warm finish to February have generally been replaced by normal to below-normal temperature patterns with concentration of cold systems within the Upper Midwest region,” said Jim Ritterbusch of Ritterbusch and Associates.

MDA EarthSat looks for a broad invasion of cold air in its 11- to 15-day forecast released Friday morning. “Overnight model runs continued to advance cooler weather in the eastern two-thirds of the nation here. The American [model] again is the colder of the two, though the European supports its general pattern,” said Matt Rogers, meteorologist with MDA Earthsat. He added that Friday morning’s data showed that “the strongest cold appears to be in the Midwest on days 13 and 14, while the East Coast sees its peak cold on days 14 and 15.”

One caveat is that 11- to 15-day forecasts are inherently more risky than shorter time frame forecasts, and on a scale of one to five EarthSat ranks the confidence of Friday’s forecast at two. Thursday’s 11- to 15-day forecast was ranked as a one.

There seems to be plenty of cold air in short- and long-term time frames. “The physical market is currently receiving a significant lift from another sub-zero cold snap that is expected across much of the Upper Midwest during the [holiday] weekend,” said Ritterbusch. In addition, “this strength in the cash market is spilling into the front natural gas spread where the March-April switch is in [the] process of flipping to a backwardation for the first time this month.”

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