Erasing last week’s significant gains, November natural gas futures soared higher Monday as traders chose to focus on near-term cold instead of the recently released forecasts calling for mild temperatures this winter. November natural gas jumped 78.5 cents, or 13.87% over Friday’s close, to settle at $6.444 Monday.

Even with natural gas in storage approaching an all-time record level, traders appear to believe that cold weather could reverse that situation in a hurry. However, most forecasts don’t appear to be calling for the next ice age. While the 2007 Farmers’ Almanac predicts a cold winter from coast to coast for the U.S. (see Daily GPI, Aug. 31), both the National Oceanic and Atmospheric Administration (NOAA) and EarthSat Energy Weather expect the season to be colder than last year but warmer than normal (see Daily GPI, Oct. 11 and related story).

While November climbed almost 80 cents Monday, gains in the winter months — while still significant — were smaller. The December contract closed 48.9 cents higher at $7.839, while January and February each climbed by 46.4 cents to finish at $8.394 and $8.444, respectively.

Forecasts of cold weather in the central U.S. this week serve as a reminder to weather bulls that it’s just a matter of time before winter kicks in across the rest of the country. AccuWeather.com reported that a shot of cold air rushing down from Canada will put a wintry scenario in place for the northern Rockies early in the week. By Tuesday, Wyoming will see some heavy snows in the mountains and even some of the lower elevations.

“Temperatures will cool off 10 to 20 degrees from the northern Plains to central Rockies from Monday to Tuesday,” the forecaster said.

Commercial Brokerage Corp.’s Ed Kennedy said this latest surge of cold air was definitely a contributing factor to Monday’s futures run-up. “We are about to see another cold snap push into the northern Plains and then into the East later this week,” he said. “I think that is background noise in this case.”

Kennedy noted that the cash market was “very strong” on the day, which he said is to be expected this early in the season. “People are not going to pull from storage early. They want reliability of supply when it is really cold in December, January and February, so they go to the cash market during these little cold snaps. This is part of the reason futures went on that run.”

Kennedy said he also heard that hedge funds were active in the futures market Monday. “We definitely had some fund buying,” he said. “I heard that in major markets there was general fund buying in gold, crude oil and natural gas, so they might be loading up a basket of commodities here again. The key term is might…because one day does not a trend make.”

As for whether the futures market has seen a bottom yet, Kennedy pointed out that there is not a completed bottom on the charts as of yet. “It could be a bottom, but we won’t know until we can close back above $6.80, which is not that far away,” he said. “Since it is still early in the season, my guess is we probed the low of what is going to be a trading range and now we are looking at what is going to be the high.”

Despite the recent mild winter forecasts from NOAA and EarthSat, Kennedy said there are other views out there. “AccuWeather is going to issue their winter forecast on Wednesday, and I am pretty sure it is going to say this winter will be below normal, which would be a heck of a lot colder than last year’s mild winter. It will be interesting to see which forecast holds up,” he said.

In spite of the looming cold, Bloomberg reported in a Oct. 13 poll that twelve of 21 traders and analysts, or 57 %, predicted natural gas prices would decline this week. Six said gas prices would rise and three expected little change. The survey has accurately predicted the direction of prices 52% of the time since it started in June 2004, the news service said.

Firming natural gas prices also could be the result of near record amounts of nuclear generating capacity being offline. Natural gas is typically used to provide replacement generation when nuclear generation is taken down, and recently there has been a tendency to take plants down during the fall because power prices have been lower than in the spring. According to the Power Market Today NRC Power Reactor Status Report last Friday, a whopping 38 nuclear plants’ were either offline or producing at less than 100% of full power. The 38 nuclear plants’ generation represents a loss of 26,010 MW, just shy of the record 26,100 MW taken out of service during 2000 fall maintenance.

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