Coming off the long holiday weekend, natural gas futures traders decided to give the upside a try on Tuesday. Gaining support from a host of factors including colder weather and strength in the crude futures arena, March natural gas soared to a high of $7.770 before settling at $7.731, up 54.9 cents on the day.

“I think what we saw Tuesday was that the market stopped falling and the funds came in and started buying,” said Tom Saal, a broker with Commercial Brokerage Corp. in Miami. “I think Tuesday’s action could be attributed to a couple of factors.

“I think the fact that we had over 10,000 seven-dollar puts played a role. Once you get close to that, traders start having to do their delta hedging and it could have helped stall the market out down at that level,” he said. “The second part is that we finally got some cold weather and the third factor is that the funds are still very, very short. When the noncommercials are 40,000 net short, that is a large net short position, no matter how you cut it.”

The Commodity Futures Trading Commission (CFTC) reported Friday that noncommercials still held a sizable net short (futures only) position. As of Feb. 14, noncommercials held 38,987 net short positions, down slightly from the previous week’s 39,767 net short positions.

As for whether the market has carved out a bottom with the $6.975 low from last Wednesday, Saal said it is too early to tell. “I don’t really like this pattern, but it could be a bottom,” he said. “I would still like to see a little more price action before I say for sure.”

Looking at the remainder of the week, Saal said there are a lot of things to look at that could affect price. “There is the gas storage number Thursday, options expiration also on Thursday and contract expiration on Friday, so it really is a busy week. There are a lot of things that could create price havoc,” Saal warned.

Crude futures continued to show strength. March crude gained $1.22 Tuesday to settle at $61.10/bbl. As for any relationship between crude and natural gas futures, Saal said there might be a little influence. “When crude oil goes up, natural gas producers get starry eyed,” he said. “Talking to the guys on the trading floor Tuesday, they said when they tried to poke natural gas futures up the first couple of times, there were ‘no sellers.’ I think the reason there were no sellers is because crude oil was up.”

Events in Nigeria have taken center stage again. Royal Dutch Shell over the weekend said it halted 455,000 barrels a day in production after a group called the Movement of the Emancipation of the Niger Delta kidnapped nine foreign oil workers and bombed Shell’s Forcados oil terminal. The group had threatened “total war” on Friday unless foreign oil companies gave the country a bigger share of oil wealth.

Traders have been down the slippery road of geopolitically driven market advances before. On Friday, March crude oil rose $1.42 primarily on fears of possible curtailment of Iranian production stemming from its efforts to enhance uranium.

Natural gas traders will also have to balance out indications of a warm March, which would lower natural gas consumption still further and lead to an even greater ending storage surplus at the end of the traditional withdrawal season March 31.

WSI Corp. Tuesday released its seasonal outlook for the upcoming March, April and May period and expects the period to average cooler than normal temperatures in the northeastern states with warmer-than-normal temperatures elsewhere (see related story). However, the forecasting firm said it expects March to bring warmer than normal temperatures to the entire central and eastern portions of the country, except New Hampshire and Maine.

Concurrently Energy Security Analysis Inc. (ESAI), said that “The WSI March forecast…will result in lower natural gas demand and lower withdrawals from storage. With current inventories over 40% above the five-year average, warmer weather in March will provide additional below average withdrawals from storage.” ESAI concluded that end-of-heating season inventories will be 1.5 Tcf or higher.

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