Helped higher due in part to colder than normal temperatures and winter storms in the Northeast, February natural gas futures on Monday explored higher. After reaching a high at $6.51, the prompt month went on to settle at $6.476, good for a 23.6-cent increase on the day. Awaiting its turn as the prompt month, March futures also achieved a 25.3-cent increase on the session to settle at $6.516.

The question now becomes how long the cold will stay. In its latest six-to-10-day outlook, the National Weather Service (NWS) appears to believe that the answer is not very long. Released on Monday, the forecast calls for above normal temperatures for the entire northern and central U.S., with below normal temperatures running south of a line from Arizona all of the way to South Carolina.

WSI Corp., which is looking out even further, said it believes the February through April period will average warmer than normal temperatures in the North and cooler than normal temps in the South (see related story).

“March natural gas prices are showing a healthy gain over Friday’s finish, but are still consolidating within the wide range for that session, which was also still contained within the wider range established last Tuesday,” said IFR Energy Services’ Tim Evans. “So while the downtrend resistance now at $6.64 and the $6.67 high from Friday may offer some overhead resistance, we think the $6.84 peak from Jan. 18 remains the more critical benchmark for upward progress.”

Evans noted that while a move higher would spark short covering, it would not necessarily be enough to blow through the psychological resistance at $7.00, the projected selling in the $7.25-7.30 area or the $7.48 high of Dec. 17. Looking lower, the analyst said that a break beneath the $6.11 floor from last Tuesday would put the prior lows at $5.90 and $5.77 at risk, with failure to hold that bottom prompting a tumble to projected buying in the $5.10 area, if not the 2003-04 lows at $4.39-4.52.

“With storage 15.9% above its five-year average, at some point the premium for current cold is going to evaporate from this market, with producers getting some encouragement to cut back on excess supplies,” he said. “Heating degree day accumulations for last week came in higher than originally forecast and that’s helping to ramp up the speculation ahead of Thursday’s DOE storage report. We had allowed for this to some extent in our own estimate and will stick with our 180-200 Bcf estimate, but both the consensus number and the actual data could wind up somewhat higher without surprising us all that much.”

He added that when a winter cold event strikes it becomes more difficult to forecast the results, adding that it will be even more difficult now because the recent data has already been “somewhat erratic” when compared with the underlying temperature data.

Some market watchers believe the market will rally with the changing of the guard on the futures contract. “I expect natural gas prices to rally when the March contract becomes spot, the (EIA) inventory report shows a withdrawal of 200 Bcf, and inventories will drop closer to historical averages,” said a California broker. He said that currently natural gas is not on any significant campaign for higher prices because of the storage burden, but winter is not over and there is plenty of cold to come. “For my end-user clients I bought February $6.50 call options just for protection going into February contract expiration in the event that prices jump higher at the last minute. They only cost 10 cents because there is so little time left on them.

“If the market gets a scare higher, those will provide (upward price) protection. For the March contract I have purchased $6.25-$7.25 call spreads for my end-users,” he said. He added that it’s not a good idea to put on any fences (the simultaneous purchase of a call option and the sale of a put option to reduce costs), for “I don’t want to be short any puts because of the likelihood the industry will not use the normal amount of storage gas (and prices will fall).”

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