March natural gas futures traded within a relatively quiet 30-cent range Tuesday before settling at $9.316, down 7.3 cents from Monday. The interesting thing about the otherwise mundane session was that the market saw almost no correction to Monday’s 88.2-cent gain.

Natural gas futures continue to wrestle with forecasts of cold weather next week along with potential influence from crude futures, which remain strong due to concerns abroad. March crude closed 43 cents lower at $67.92/bbl on Tuesday as the Organization of the Petroleum Exporting Countries decided to keep oil output unchanged.

One broker said it appears natural gas futures could be in the process of finding a comfort level. “I really think we are finding ourselves in a trading range,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “The upper end is $9.60 with $8.50 at the bottom. I think we are going to stay in this range for a while because below $8.50 is where all the trade came in and started buying.”

Kennedy noted that there is a lot of uncertainty as to exactly how cold it is going to get and for how long. “I think we will have to wait until the end of this week to get a better feel for it,” he said. “The thing we have to remember here is that we are more than halfway through the heating season and we have plenty of gas still in storage. I really think we will have to see the wooly mammoth starting to shiver before we start to get concerned about our natural gas supply situation. Anything short of another ice age and I can’t see natural gas getting back up through $9.60.”

Commenting on Monday’s price jump, Kennedy said the market was “way overdue” for a round of profit-taking. “The shorts had a beautiful ride on their sled down the hill, but if you’re short…how do you take a profit. You have to buy.”

Addressing support in the mid-$8 area, Kennedy said there might be some hedging going on. “The utilities probably went to their utility commissions back in November and got their rate increases because of fuel prices, but where were those fuel prices, $10, $11? These utilities would be foolish not to come in and lock-in some prices down in the mid-$8 range, so that is one portion of the support we saw. Likewise, the industrials, like the chemical or glass industry — who were totally under-hedged — came in as well down in the mid-$8 area.

Kennedy does not subscribe to the idea that natural gas’ relationship with crude is responsible for the recent price support. “Natgas is a domestic commodity, while crude is an international commodity that is subject to geopolitical events.” He added that while a certain population of the U.S. has the option of fuel switching, it is not done very often, making the comparison a stretch. “The fuel-switching story begins with ‘Once upon a time,'” Kennedy said.

While no ice age is being forecast, colder temperatures do appear to be moving into position for some regions of the country. AccuWeather.com meteorologist Jon Mabry, said “temperatures will remain above normal across the western half of the United Sates as the overall jet stream pattern will push north into western Canada.” He added that in the East the jet stream will track more to the south over the eastern half of the country. North and east of a broad arc extending from eastern Minnesota to northeast Mississippi and South Carolina is forecast to be below normal. “This will allow colder air to flow south out of Canada and bring a return to more typical winter conditions east of the Mississippi River Valley.”

Like Kennedy, others suggest that Monday’s price hike was due to the structure of the market rather than any fundamental factor. “Even if February weather cools down to normal, we will have high levels of gas in storage at the end of the heating season,” said James Williams, an economist at WTRG Economics. “There is too much gas in storage, and this has to be about traders’ positions rather than a tight market.”

Traders’ positions are heavily skewed. The Commodity Futures Trading Commission on Friday reported that noncommercials, typically funds and managed accounts, as of Jan. 24 held a net short position of 47,932 (futures only) contracts. This is a slight decrease from the 50,677 net short (futures only) contracts held a week earlier, but a sizeable net short position, nonetheless.

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.