The natural gas futures market turned lower Monday as bears won Round One of what is shaping up to be a compelling battle between short- and intermediate-term weather outlooks. As is often the case on the first trading day of the week, the price action began in the overnight Access trading session. By the time the open-outcry trading session commenced at 10 a.m. EST, bulls were already faced with having to climb out of a deep deficit.

The February contract rebounded admirably throughout the day to close at $6.906, down 38.1 cents from Friday’s close, but 33.6 cents above the low notched shortly after the day’s opening print.

“The coldest air in nearly two decades is likely to affect southern New England Tuesday night and last into Friday,” warned a forecast advisory posted by the National Weather Service Monday. “This past Friday and Saturday’s weather may have been just a taste of what is likely to be even greater in magnitude of record cold…. Conditions are likely to worsen Thursday night and Friday as a reinforcing surge of frigid air overspreads New England,” the NWS continued noting that temperatures could drop to 5 to 15 below, with wind chill readings dropping to 25 to 35 below.

The severity of conditions this past weekend in New England were no secret. In addition to watching prices rally to new 10-month highs on Friday, anyone watching the New England Patriots’ playoff football game Saturday night on TV can attest to the low single digit temperatures near Boston.

However, the futures market likes to look ahead at the longer-lead forecasts and many market watchers believe it is the bearishness of those outlooks that led to the price softness Monday. According to the latest six- to 10-day forecast released by the National Weather Service, the weather beginning this weekend will improve for most of the country. Specifically, above-normal mercury readings are expected across the large swath of the Northern Plains and Upper Midwest, as well as along the California coast. And while below-normal temperatures will be slow to ease in the Northeast, the forecast represents a dramatic improvement over similar forecasts late last week.

Looking ahead, the topsy-turvy weather over the past week or so has put added significance on the next couple rounds of storage data. Though the weather ended last week at or near record lows in parts of New England, the heating degree days computations from the NWS revealed that on balance, last week was warmer than normal. Armed with that information, analysts have produced some wide-ranging predictions for this Thursday’s storage report.

At the bullish end of the spectrum is Tim Evans of IFR Pegasus in New York who points to degree day accumulations greater than forecast in calling for a 200 Bcf draw. In the middle of the range is Kyle Cooper of Citigroup in Houston with an estimated draw in the 170 Bcf range. “This week’s report will be considered vital in determining any adjustments in the temperature adjusted supply/demand balance,” he said.

On the bearish side of the withdrawal range at 155 Bcf is Mississippi-based analyst Stephen Smith, who has performed admirably at estimating storage using a weather-normalized calculation based on a five-year average spanning the 1994-98 timeframe.

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