A sharp reversal in the near-term weather forecast prompted heavy buying of natural gas futures Monday. Short-term traders suggested the market still had room to advance further, but also saw the day’s advance as a prime selling opportunity.

At the close March futures rose 30.3 cents to $5.434 and April tacked on 28.5 cents to $5.405. March crude oil also rose posting a closing gain of $1.54 to $74.43/bbl.

“It’s a weather thing, but I think there is more room to move higher,” said John Woods, senior trader at MacNamara Options, New York. He added that the March contract was capable of getting as high as $5.47 to $5.52, but if it got that high “I would lean on it [sell]. We got down to $5.08 or $5.09 and all today did was change a weather report. We are freezing our tails off here in New York.”

It looks like New York traders may be enduring cold weather for some time to come. WSI Corp. of Andover, MA in its morning six- to 10-day forecast predicted that with the exception of the northwestern U.S. and northern Plains, colder than normal temperatures were expected to encompass the continental U.S. “Anomalies as cold as 8 degrees below normal are forecast over the southern Plains and Texas.”

It looks as though the same factors that ushered in Arctic air in early January will return in February and actual temperatures may end up still colder than presently forecast. “Temperatures may trend colder over most of the country than currently forecast. All models advertise the AO [Arctic Oscillation] and NAO [North Atlantic Oscillation] will transition to strongly negative phases in early February,” the forecasting firm said.

Swings in weather forecasts have had a major impact on trading and others hint that selling at these levels may not be such a good idea. “This unusual volatility in which the one-two week weather forecasts have generally been in a state of flux all winter has been a major contributor to the wide swings in the natural gas futures,” said Jim Ritterbusch of Ritterbusch and Associates.

Ritterbusch sees a potential reinforcing effect from positive economic news as being a major factor as the week wears on. “Unless the temperature views swing back to the normal or mild side this week, additional economic releases could play a key role in this week’s price trends. Tuesday’s pending home sales, Thursday ‘s factory orders and Friday’s employment numbers will all have some bearing on natural gas price direction. With the weather factor shifting back toward the bullish side, any additional favorable economic guidance could have an outsized effect as the large speculators further reduce a large short position,” he said in an afternoon report to clients.

Traders who added to their long positions last week were right on track. The Commodity Futures Trading commission reported a sizeable increase in positional traders on the long side of the natural gas market for the week ended Jan.26. The managed money component including futures and options on the New York Mercantile Exchange increased long holdings by 1,513 contracts to 144,719 and short positions by 2,322 to 183,506.

On the IntercontinentalExchange long positions (2,500 MMBtu) increased 64,124 to 565,790 and short positions rose by 4,089 to 28,552. After adjusting for contract size long positions (futures and options) on both exchanges increased 17,544 and short holdings rose by 3,344, more than a 5:1 tilt to the number of long positions. Curiously for the five trading days ended Jan. 26, the now-expired February futures fell 7.2 cents to $5.485.

Monday’s weather-buying binge notwithstanding longer term traders see the natural gas market struggling. “Natural gas worked steadily lower everyday [last] week. Natural gas continues to fight an uphill battle on a fundamental basis,” said Mike DeVooght, president DEVO Capital, a Colorado trading and risk management firm.

He noted that demand is weak, commodities in general are moving lower, and Washington regulatory proposals could make it less attractive for the perpetual commodity bulls to tout the long side. “There is a lot of physical gas that can come to market if prices move up by any significant amount. It almost seems like the old bulls are going to have to throw in the towel and prices break sharply before we can see a significant rally in the gas market,” he said.

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