In reaction to mounting bullish pressure and in agreement with its seasonal tendency to rally in October, the natural gas futures market soared Tuesday amid waves of managed fund short-covering.

November advanced 23.6 cents to close at $5.14, its highest settlement in four weeks. At 120,197, estimated volume was extremely heavy and was proof of the existence of speculative trading activity.

Sources polled by NGI were quick to point to the way in which the upward move accelerated Tuesday as prices moved above November’s 40-day moving average. After a brief rally and retreat early in the session, bulls made the move above the $5.01 level stick late Tuesday morning. By 12:30 p.m. EDT, the November contract had carved out a new six-week high at $5.21.

Though it is difficult to know for sure, all indications point to short-covering by the non-commercial fund traders as the driving factor behind Tuesday’s gains. In fact, a portion of last week’s advances can also be blamed on these speculative traders who reduced their net short holdings from nearly 40,000 as of Sept. 23 to about 36,000 as of Sept. 30, the Commodity Futures Trading Commission announced Friday.

During that one-week period, prices increased 13 cents — a small taste of what might occur if these fund traders cover the rest of their shorts, traders agree. The next Commitments of Traders report will be released by the CFTC Friday, showing positions as of the close of business Tuesday.

However, buying by fund traders was not the sole reason for the rally. Also at work, sources agreed, was the market’s seasonal tendency to rally in October. “This market tends to rally on the uncertainty leading up to the beginning of a new heating or cooling season,” said Stephen Mosley of Arkansas-based SMC Inc.

Looking ahead, Mosley looks past the potential for a bearish reaction to Thursday’s storage report and sees gas futures reaching the $5.80 level on or slightly after the beginning of the heating season Nov. 1. “I am calling for a 75-80 Bcf refill, which may be on the high side. Anything over 80 Bcf should bring prices back below $5.00, at least for [a short period].”

The common range of expectations for Thursday’s release center on a 60-78 Bcf refill, which would exceed the five-year average injection of 57 Bcf, but fall short of the recent string of 100 Bcf refills.

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