Buoyed by heavy market-on-close buying, natural gas futures spiked higher at the closing bell, but that only served to trim losses suffered earlier in the trading session. The December contract finished at $2.606, down 9 cents for the session. Meanwhile, the January contract closed with a 1.6-cent gain at $2.951, proving that traders have not yet given up on the winter. Estimated volume of 120,569 was heavy, even considering it was December’s penultimate trading day.

Traders were quick to point to cash market prices, which despite double-digit gains Tuesday remained at a 70-cent discount to December prices as a reason for the weakness in futures. “We need to see some convergence and there is not much time left for that to happen,” a cash trader said. “Either futures need to continue lower or cash prices will need to move higher.”

Tom Saal of Pioneer Futures agrees, adding that the forward-carry premium is so great between November and December because of the inability on the part of storage players to continue to inject gas at the rate they have for the past seven months. “Cash prices are below $2.00 on some incredibly bearish fundamental weather across the country. Should December futures come all the way down there to meet cash? I’m not sure if that is in the cards, but I can say that to enter the month of December with more than 3.1 Tcf in the ground is certainly not bullish.”

Looking ahead, toward today’s release of updated storage data, Saal predicts a 6 Bcf injection. “There remains an incredible incentive to inject gas and a disincentive to withdraw gas. If you can find the space, you are still injecting.” If Saal is right and the market was able to realize a net injection last week, it will be only the third time in the last five years that the market experienced a net injection this far into the withdrawal cycle. Last year the market pulled 146 Bcf from the ground and the five-year average calls for a 66 Bcf withdrawal.

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