November natural gas futures traders on Monday continued to knock on the $5 resistance door to no avail as the contract reached a high of $4.972 in afternoon trade before closing out the regular session at $4.880, up 11 cents from Friday’s finish.

The front-month contract has already breached the $5 price level four times this month but has yet to actually settle north of the pivotal point. The November contract most recently broke above $5 with a $5.045 high last Thursday before closing at $4.963.

While chillier current temperatures are helping the bulls with their assault of resistance, some market watchers see the near-term forecasted warm-up undermining support.

“The natural gas market is sharing in the broader Monday energy bounce, with cold temperatures over the next two to five days still something of a support for the market,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “However, by the 11-15 day period there could be warmer-than-normal temperatures over much of the U.S., with only normal readings for the balance of the country.”

Evans said he believes futures in the near term will likely be pulled down closer to par with the cash market. So far, the cash market has done most of the converging after four strong days higher last week. After the Henry Hub-to-November futures deficit spread went from $2.398 on Oct. 2 to just 72.3 cents last Thursday, it widened slightly Friday to 85 cents with futures at $4.77 and the Henry Hub cash average at $3.92. On Monday the futures premium widened a bit more to 92 cents.

“As was the case in Friday’s trade, we see the coming warming trend as an intermediate-term downside risk for the market that would undermine cash quotes, pulling the November futures down on top of them for convergence at a lower level,” Evans said. “Although the longer-term prospects look constructive, record storage still represents a cap for the market until the storage withdrawal season gets established in our view.”

On Monday traders were digesting weather reports calling for colder-than-normal temperatures this week and reports that managed funds continue to increase their short holdings.

The National Weather Service (NWS) predicted heating requirements in major energy markets will jump well ahead of historical norms during the week. For the week ending Oct. 17 NWS forecasts that New England will shiver under 141 heating degree days (HDD), or 39 more than normal; and New York, New Jersey and Pennsylvania will see 128 HDD, or 42 more than average. The Midwest from Ohio to Wisconsin is expected to endure 135 HDD, or 45 more than normal.

Friday’s 19.3-cent retreat by the November contract to $4.77 had some thinking that the recent rise is prices may be ripe for at least a modest correction, but at this time of year weather can change everything quickly. “Cold temperatures remain an ongoing feature in this market, and if forecasts push prices higher and they break over $5.12, we should expect to see the uptrend continue,” said an East Coast consultant. He added that “one can’t help thinking that a reduction in long positions could give the market the fresh ammunition it would need to take the next step to appreciably higher levels.”

Risk managers seeking to protect clients from falling prices are holding on to current positions. Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm, advises trading accounts and end-users to stand aside. Physical market longs are advised to hold on to a November $4.50-6.00 collar (selling a $6 call option against the purchase of a $4.50 put) as well as continuing to hold the remainder of a 12-month $5-8 collar originally purchased in August for 35 cents.

The Commodity Futures Trading Commission reported Friday in its Commitments of Traders report that funds and managed accounts increased both their long and short positions, although spot prices moved little. As of Oct. 6, the managed money component of the report increased its long positions by 2,051 contracts to 136,510 and short positions gained by 5,668 to 166,210. For the five trading days ended Oct. 6, November futures gained all of a half of penny to $4.880.

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