The natural gas futures market meandered within its recent trading range again Monday as traders continued to process the mixed signals of early season cold and record storage levels. The December contract traded between $7.740 and $8.070 on the day before retreating to close at $7.961, up 6.4 cents from Friday’s finish.

Adding to the muddled natural gas picture is the recent volatility in crude futures and reports that upcoming weather is expected to be slightly warmer than normal. December crude on Monday backed further away from last week’s $98.10/bbl high. The contract put in a low of $93.65/bbl before settling at $94.62/bbl, down $1.70.

“Natural gas futures are still in this range from $7.500 to $8.500. The November contract went out at $7.269 and I think the market is still carrying a premium to that,” said Tom Saal of Commercial Brokerage Corp. in Miami. “We don’t know what kind of weather we are going to get between now and the end of the year. The utilities notoriously like to be a little stingy on their storage inventories from November into the early part of December. Whatever weather we do get, the gas is currently being picked up in the cash market.”

Saal said the funds in the natural gas futures market still have a role in how prices play out here. “The funds are still very short natural gas, so the potential is there for some short-covering on a moment’s notice, despite record storage. I don’t think full inventories entering the withdrawal season is as important as it once was.”

Saal said with $8 basically “not stopping this market,” he sees resistance up near $8.200. “In the near-term I see us stuck in this range. Price direction will really depend on what kind of weather develops. Even if we get some severe cold between now and the end of the year, I really don’t think we will get much above $8.500. Now an extended stretch of severe cold might be a different story.”

Risk managers also see no immediate relief from the extended trading range. “The gas market continues to trade in its protracted trading range, and the strong energy complex has been supporting the gas market while more than adequate production and storage and weak manufacturing demand has been pressuring the market,” said Mike DeVooght of DEVO Capital Management, a Colorado-based trading and risk management firm.

The natural gas market is currently in its anticipatory phase; there is great uncertainty as to what kind of winter weather will be forthcoming and although “record storage levels have been a drag on the market, the storage numbers will take a back seat if we can get any significant help in the form of colder-than-normal temperatures or any significant utility or manufacturer buy hedging,” DeVooght said.

For the upcoming week colder-than-normal temperatures may be a stretch. The National Weather Service forecasts fewer than normal heating degree days (HDD) for the week ending Nov. 17. For New York, New Jersey and Pennsylvania, 148 HDD, or three fewer than normal, are predicted, and for the industrialized states of Ohio, Indiana, Illinois, Michigan and Wisconsin 132 HDD, or 40 fewer than normal, are expected. Of all the regions of the country only New England — at 172 HDD, or seven more than normal — is forecast to experience colder than normal weather.

Weather vagaries will no doubt play a pivotal role in the direction of natural gas prices, but underlying industrial demand may also be a question mark. Last Thursday Federal Reserve Chairman Ben Bernanke, testifying before the Joint Economic Committee, said economic growth will slow noticeably in coming months while rising oil costs will raise inflation pressures. He added, however, that the economy is nowhere close to the stagflation of the 1970s, and he predicted an economic rebound by mid-2008.

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