Continuing the momentum from Monday’s 50.5-cent slide lower, January natural gas futures probed lower Tuesday on news that a majority of the U.S. might not be subjected to a stretch of below normal temperatures as previously predicted.

After trading as low as $6.76 on Tuesday, the prompt month climbed higher in the afternoon to settle at $6.856, still good for a 9.6-cent decline on the day. Natural gas’ petroleum counterparts finished the day almost unchanged, with January heating oil settling up six one-hundredths of a cent and February crude closing down 2 cents.

“The natural gas market extended Monday’s slide, as more moderate temperatures in much of the U.S. have allowed cash prices to fall back, undermining support for the futures as well,” said IFR Energy Services Tim Evans. “As we have noted, absent widespread, severe cold that could work off the 14.3% year-on-five-year-average storage surplus, prices will tend to fall, even just with the days and weeks falling off the calendar, as it becomes easier to calculate that inventories are more than sufficient to last the heating season.”

Evans noted that above normal temperatures would accelerate this process. He added that the Energy Information Administration (EIA) natural gas storage report for the week ended Dec. 17 could also serve as a reminder of this problem, as he anticipates a smaller than average pull.

Looking ahead, current weather and weather forecasts continue to remain the focus of traders’ attention. The futures drop the first two days of this week were partially attributed to earlier weather forecasts that were revised Monday. Earlier six-to-10-day forecasts by the National Weather Service had virtually the entire U.S. locked in the grip of below normal temperatures. Currently the NWS six-to-10-day forecast shows normal to above normal temperatures across a broad front east of a line extending from southeast Arizona to the Upper Peninsula of Michigan.

In spite of the changed forecast, the NWS predicts an above average occurrence of heating-degree-days (HDD) for pivotal Midwest industrial and eastern markets. For the week ending Dec. 25, the East North Central states of Wisconsin, Illinois, Indiana, Michigan and Ohio are forecast to see 332 HDDs, 61 greater than normal, and the important lower Northeast markets of New York, New Jersey and Pennsylvania should experience 251 HDDs, 12 greater than normal.

Looking at February natural gas futures, Evans said the month’s break below $6.93 extends the drop from the highs and puts the market into the lower half of its recent trading range, raising some question whether the $6.635 floor from Dec. 8 will hold as longer-term support. February settled on Tuesday at $6.904, down 11.9 cents on the day.

“There may be some residual buying beneath that level through the corresponding spot support at $6.495, but past that level we see the $6.31 contract low from Sept. 16 coming in for a serious test, with any further decline suggesting a larger adjustment toward projected support at $5.10 or even the $4.52 spot low from September as a longer-term objective,” Evans explained. “Prices could fall even further if we get into a cycle where storage gas is getting dumped, rather than conserved for the balance of the winter.”

On the flip side, Evans said psychological resistance at $7.00 is initial resistance now with more selling currently in the $7.15 area and again at $7.30 before the $7.62 high from Friday. “For now though, it looks like the funds have stuck with their short positions and it’s the commercial longs who are at risk,” he added.

Looking to Thursday’s storage report, Evans said he believes it will reveal that 95 to 115 Bcf was pulled from storage last week, still lagging behind the 122 Bcf five-year average benchmark. Citigroup’s Kyle Cooper is calling for a draw between 139 and 129 Bcf. Last year’s pull for the week was a whopping 151 Bcf.

As for the report release, the EIA said an Internet Service Provider (ISP) problem in Washington, DC has made Internet access and e-mail communications difficult for the Department of Energy headquarters as well many other federal agencies located in the city. As a result, the EIA has put a contingency plan into effect to collect data used in its weekly petroleum and natural gas reports from those respondents who normally submit data via e-mail or the Internet.

“While Internet service was fully restored [Tuesday] afternoon, the Department and its ISP are not in a position to guarantee that further disruptions and intermittent connections will not occur,” the EIA said. “Therefore, we are also activating contingency procedures to assure that critical weekly petroleum and natural gas data are available for dissemination at their normal release times in a way that does not require Internet access.”

In addition to having it posted on the web site, printed copies of key tables of the Weekly Petroleum Status Report will be available in the lobby of DOE headquarters (James Forrestal Building) at 10:30 a.m EST on Wednesday. In addition, DC staff of the National Energy Information Center will be available at (202) 586-8800 to fax selected pages of the report or read numbers over the telephone.

Printed copies of the Weekly Natural Gas Storage Report will also be available in the lobby of DOE headquarters at 10:30 a.m. EST Thursday morning. Staff of the National Energy Information Center will again be available to fax the report or read numbers over the telephone.

“When full, reliable Internet service is restored, EIA will issue another press release immediately, announcing the discontinuation of contingency procedures,” the agency said.

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