As significant cold continued to move across the Midwest and into the Northeast, February natural gas futures continued to build on Friday’s and Monday’s gains on Wednesday, pushing 36.7 cents higher to close at $7.850, one cent shy of the day’s high.

“I think the futures market continues to react to the cold in the Upper Midwest, which is moving into the Northeast. Even though it is expected to be short-lived, there are a lot of people out there who are looking for a reason to want to buy the market. I think that is what we are seeing,” said Steve Blair, a broker with Rafferty Technical Research in New York. “It really is follow-through from last week’s breakout, which was sparked by the larger-than-expected storage withdrawal report last week. Add to that the expectations of some pretty good withdrawals over the next few weeks, and I think that is where this recent strength comes from. Utilities are obviously pulling from storage for immediate needs rather than going into the cash market, because why would they want to pay over the screen price?”

While natural gas futures were explosive in its own right, most attention on Wednesday was on February crude, which recorded a $100/bbl tick during the day before settling at $99.62/bbl, up $3.64 over Monday’s finish. The validity and importance of the $100/bbl print was also suspect, as there was speculation that one floor trader “paid up” just to see the record milestone. Despite the commotion in oil, some traders still see the natural gas market as calling its own shots. “I don’t think crude influenced natural gas on Wednesday,” said Blair. “I really think natural gas futures continues to march to their own drum and I predict that behavior will continue.”

Looking at the current natural gas futures price level, Blair said some up and down movement — in that order — could be just ahead. “Our last major resistance number was near $7.630 and our next significant number is up near $8.280, so we have some room to roam to the upside,” he said. “I think we might see some more movement to the upside before the above-normal conditions arrive next week. As temperatures moderate next week, I think we might see a pullback in prices. However, as more gas gets pulled out of storage, that pullback could be tempered. That said, I think $7 is pretty solidly in the rear-view mirror in the short term.”

Some market technicians see prices undergoing a correction to the pervasive downtrend in place since early November. Once the February contract surpassed the $7.280 level on Friday when it closed at $7.386, up a hefty 18.6 cents, prices exceeded the 0.236 retracement of the decline from Nov. 1. “Monday continued the presumed bear market correction up from the [Dec. 27] $6.838 low, finding early-day support on the 0.236 retracement of the $8.712 to $6.838 decline and then rallying straight to the 0.382 of the same [Monday’s high of $7.540],” said Walter Zimmerman of United Energy.

Prior to Wednesday’s session, Zimmerman observed that the near term points to higher prices. “If this is indeed a bear market correction, then we would expect to see the pace of ascent lessen when and if natural gas futures approach the 0.618 retracement up at the $8 level. The next two hurdles are the 0.382 [retracement] at $7.555 and the 0.500 at $7.775,” he said in a note to clients.

Near-term weather forecasts, however, suggest that the recent advances may not have much further to go. In its morning six- to 10-day forecast MDA EarthSat looks for a warming trend. “Excellent model agreement for strong warming across the Midwest and East remains in the latest model runs. Currently the peak of the warmth in the Midwest appears to be on day six for the Midwest and day seven on the East Coast, when warmth reaches levels that may endanger some record high temperatures,” said Matt Rogers, EarthSat meteorologist.

Taking an early look at the storage report, industry expectations are for a fourth consecutive triple-digit withdrawal. Because of the New Year’s Day holiday, the Energy Information Administration will be releasing its natural gas storage report for the week ended Dec. 28, 2007 on Friday.

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