November natural gas futures on Tuesday dismissed resistance at $5 without so much as a glance as the contract reached a high of $5.195 before closing out the regular session at $5.161, up 32.6 cents from Monday’s regular session finish. The last time a front-month contract traded higher was back on Jan. 14 when the February contract reached $5.235.

Prior to Tuesday the prompt-month contract ventured north of $5 four times in the last two weeks, but had not been able to close a regular session above $4.999. Some market watchers had been expecting the resistance point to give up soon (see Daily GPI, Oct. 20).

“We have been having this little battle with resistance in the $5 area. What I’m really seeing is more short-covering than anything else,” said Julio Sera, a broker with Hencorp Futures LC in Miami. “We’ve had a pretty substantial rise in the commodity market overall and we have a pretty weak dollar. Gas futures has put together a couple of short-covering formations over the last couple of days, so I think we are seeing a squeeze of the spec position.”

Citi Futures Perspective’s Tim Evans noted that futures finally got over the $5 hurdle it has been having so much trouble with. However, the analyst was scratching his head a bit on Tuesday as to why it actually occurred.

“The lovely warming trend in temperatures actually pushed up prices. I think it was a cloudy day in the western Caribbean, so we took the market higher on short-covering,” he joked. “What is funny is we started this on a rally on a forecast for cold temperatures. We then tried the upside again in conjunction with the actual cold. Now we are trying to extend those gains going into Thursday’s storage report. I have to wonder whether that is a setup for ‘buy the rumor and sell the news.’ It almost doesn’t matter what the storage number turns out to be; I think you sell it anyhow. At some point somebody is going to remember that storage levels are at an all-time record high.”

Evans told NGI the current price area has him concerned about the downside potential. “We are looking at a forward curve in the $5-6 range, which is already a substantial step higher from the $2.50 we had in the beginning of September. At some point, I don’t see these current prices as cheap anymore. Right now I’m afraid to be long, because from a $5 or $6 handle I think there is downside risk.”

The recent cold in eastern markets got the bulls’ attention, but industry veterans caution that seasonal highs in the natural gas market are often in place by this time of year. “It seems that the only real bullish news for the gas market is how cheap it is versus the complex. We are starting to have traders talk about upcoming winter and how that could be bullish for the gas market,” said Mike DeVooght of DEVO Capital, a Colorado trading and risk management firm. He added that a cold start to the heating season could be bullish, “but keep in mind that the gas market usually puts in its seasonal highs by late October to mid-November.”

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