In a move remarkably similar to the December 2000 rally to $10, natural gas futures accelerated their move higher Monday as cold weather forecasts and double-digit physical prices prompted waves of panic buying at Nymex. After extending past psychological resistance at $7.00 late Sunday night in computer-only Access trading, the March contract exploded to a new 25-month high at $9.20. It closed just off that level at $9.137.

At $2.531, Monday’s price advance in the March contract was the largest daily increase ever in natural futures trading, more than double the previous record change of $1.101 set back in December of 2000.

Traders were quick to point to weather forecasts calling for another Arctic blast of cold air as a reason for the price spike. As the East continued to deal with the aftermath of a two foot snowfall over Presidents Day weekend, weather forecaster Jon Davis of Salomon Smith Barney shocked people by last week calling for below-normal temperatures to usher in the month of March (see Daily GPI, Feb. 20). That prediction was then corroborated Sunday when the National Weather Service released its updated six- to 10-day and eight- to 14-day outlooks, which call for below-normal temperatures for much of the country through March 9.

Also providing the futures market with a boost was the physical gas market, which rallied Monday morning in both the production and the market area. Henry Hub gas in Louisiana Monday morning traded anywhere from $8-16, up more than $5 for the day. Meanwhile, New York area gas fetched between $16 and $32 Monday morning as traders loaded up on supply ahead of sub-freezing temperatures expected by midweek.

While admitting that Friday’s $6.606 close was neutral because it fell short of the $6.70 spike high notched following the barge explosion in New York Harbor Friday morning (see Daily GPI, Feb. 24 ), George Leide noted that there was nothing neutral about the price action Sunday night or Monday morning. “There is some scared money out there. Shorts are covering and after being burned before, traders are unwilling to try and pick a top…. This market is just too dangerous to trade right now.”

Since the market soared through resistance in the $8.90 – $9.01 area Monday, Leide believes the market may be ripe for a run to the $10.10 high from December of 2000. On the downside, a break below today’s $7.40 low would make the market “a bit toppy,” continued Leide. However, he would not endorse an outright short position until the market breaks below Friday’s $6.70 high.

Following Monday’s record-setting price action, traders and market watchers were looking back into their historical databases in an attempt to find some clue how the market may behave. While the events of December of 2000 are open to interpretation, the quick analysis of that period is that volatility — directed by waves of technical buying and selling — was the rule. The largest daily gain the market could muster during that period was just $1.101 on Dec. 6, 2000. Just four trading days later on Dec. 12, 2000 the January 2001 contract began a price slide that would cost it $2.00 over the next three sessions.

Many thought the rally to be finished after that, but the bulls bounced back and pressed the market to its all-time high of $10.10 on Dec. 27, 2000. By late-February, the market would drop back below $5.00 en route to a $1.76 low in September of 2001.

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