As expected, follow-through buying took natural gas prices higher Tuesday morning as more buyers jumped on the bandwagon following a two-day, 40-cent gain. However, all good things must come to an end and prices tumbled lower Tuesday afternoon amid a round of light profit taking. December finished at $4.261, down 0.2 cents for the day and in the bottom half of its $4.215-335 trading range. Estimated volume was relatively heavy, with 95,767 contracts changing hands.

After shocking the market with revised forecasts calling for below normal temperatures for the eastern half of the country Monday, the National Weather Service confirmed it wasn’t a fluke with the issuance of Tuesday’s weather maps, which call for the cold air to stick around until at least Dec. 3.

“The natural gas market didn’t really have much in the way of fresh fundamental news to work into prices [Tuesday] and, instead, spent the session essentially ratifying the major adjustment made on Monday,” wrote Tim Evans of IFR Pegasus in New York. “The outlook for cooler temperatures into the end of the month remains a supportive factor for the market, as does the general sense that supply has slipped and that a further development of a year-on-year storage deficit is likely,” he reasoned.

Jay Levine of Advest Inc. in New Hampshire agrees and believes that the market’s move lower in early November was grossly premature. “Winter had not even begun yet and people were already discounting it as a non-event.” That being said, however, he is reticent to endorse jumping in on the buy side until the market first has the opportunity to correct downward. “I look to be a scale-up seller at current levels on increments of 10-12 cents,” he said. Once the market reverses, Levine looks for a downside target at $4.03, which corresponds to the bottom of the chart created by Monday’s higher open.

Natural gas futures are expiring on the second-to-last business day of this month — Tuesday, Nov. 26 — rather than the third-to-last business day as it has since the Gas Industry Standards Board standardized first-of-month pipeline nomination deadlines back in the mid 1990s. A Nymex spokesperson said that the change to the second-to-last business day is an anomaly for the December contract, created because the exchange set the contract termination schedule before finalizing the 2002 holiday calendar. By the time the holiday calendar was set and it was decided that Friday, Nov. 29 (the day after Thanksgiving), would be a holiday, the exchange already had open interest in December options. Because option prices are based on time to maturity, it would have been imprudent for the exchange to move the expiration date, she said. Without moving the options expiration, Nymex was unwilling to move the futures expiration (futures always expires the next business day).

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