Despite the nearly nationwide warm-up expected for the Jan. 18-22 week, the February natural gas futures contract departed from Thursday’s weakness to probe the upside Friday. The prompt-month contract traded into the low $5.70s before closing the regular session at $5.691, up 10.3 cents from Thursday’s finish but 5.8 cents lower than the previous week’s close.

“I’m surprised that futures came back on Friday. The weather ahead is not looking very positive for natural gas bulls,” said Julio Sera, a broker with Hencorp Futures LC in Miami. “Now, right around the beginning of February, the forecasters are saying the Arctic oscillations and North Pacific oscillations are going to go negative again and bring the cold weather back. However, I’m not so sure we are going to get as cold, for as long, as we did with the December-January burst we’re just finishing.”

Sera noted that there are still two more weeks until the February contract goes off the board and he is not so sure that other fundamental factors are favoring the bulls. “Contrary to what some analysts are saying, I’m not so certain that the industrial demand is coming back online just yet,” he told NGI. “I think people are really making more of that than there is. As of right now I think we’re seeing some technical trading and Friday’s uptick was a reflection of some short-covering ahead of a three-day weekend. Bigger picture, we’ll have to see what’s on the other side of this 10-day warm-up.”

Taking a look back at Thursday’s 266 Bcf withdrawal storage report for the week ending Jan. 8, Sera said what surprised him the most was the wide range of estimates from the industry ahead of the report. “You had some people calling for sub-200 Bcf pulls and others looking for a decline of 280 Bcf or more. At 266 Bcf, there were a lot of traders out there that had been expecting a draw of more than 270 Bcf. When that did not happen, I believe the sell-off was triggered.

“Storage reports are always dangerous for traders. When you get to the loftier prices like $5.50 and up, I think it is wise to have some sell stops into the natural gas market ahead of the report. Because when it drops, it drops like a rock.”

Another broker said Friday’s uptick was likely sparked by moderating weather forecasts for the rest of January. “Some of the private forecasters are saying the warm front that is about to hit the United States might be overstated,” said a Washington, DC-based broker. “Traders could be concerned when they clock back in after the three-day weekend that the forecast might be a little more bullish from a degree day standpoint. Another possibility for the move higher is that traders are students of history. Following the 274 Bcf record natural gas draw back for the week ending Jan. 25, 2008, the futures market sank 30 cents. However, two weeks later futures were screaming higher. Folks might be looking at this as a kind of road map.”

She noted that whether the warm-up reaches its full forecasted potential or not, most people within the industry are treating it as an “intermission instead of the end” to winter. “This cold stretch was not winter’s final act. We build up the cold weather on the North Pole and then eventually drain it all out. The system in all likelihood is reloading now.”

Looking at the future for prices, the broker noted that the market is going to be hard pressed to make it much higher than $6.10. “I think $6.300 would be the next resistance level, but you have to remember that $6.100 was the best we could do following one of the coldest stretches in recent memory,” she said. “We’re going to need some extremely cold weather to break out of the current range. If it is going to go from above normal to slightly below, that is not going to cut it because we need some serious cold to continue to pull down storage levels.”

Some top analysts note that in spite of Thursday’s 14.5-cent price plunge by February futures to $5.588, the market still retains positive overtones. “We saw nothing particularly bearish about a storage decline that came close to totaling the combined draw of the prior two weeks and that saw the surplus against average and year-ago levels plunge from around 11% to roughly 4%,” said Jim Ritterbusch of Ritterbusch and Associates.

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