Psychological support at $7 held up once again on Tuesday for January natural gas futures, but the talk among traders seemed to indicate that the last stand could be right around the corner as temperatures are likely to warm up in the latter part of December. The prompt-month contract closed Tuesday at $7.085, up 5.3 cents from Monday.

After rallying in the overnight electronic Globex trading session and opening Tuesday’s regular open outcry session at what would turn out to be the day’s high of $7.205, the bulls ran out of steam. The January contract went on to put in a low of $7.020 before inching higher to close. January crude Tuesday climbed $2.16 to close at $90.02/bbl.

“While the natural gas front month failed to get below $7 yet again, the real news on the day was that the early rally ended up getting slaughtered,” said a Washington, DC-based broker. “Trading activity really has been pretty mild. The failed rally does not strike me as bullish behavior, even though we settled higher on the day. On top of that, natural gas was up 5.3 cents in the face of a big day higher in crude, so all things considered I would still be on the bearish side in natural gas.”

The broker noted that the formation of Subtropical Storm Olga along the eastern coast of the Dominican Republic was not factoring into trading strategies, even if the storm did form almost two weeks after the official end of the 2007 hurricane season. “I really don’t think people were looking at the tropics,” the broker told NGI. “I think they were more concerned with Alberta Clippers and Nor’easters.”

However, some traders are focusing on help from a resilient cash market and expected cold weather. “This week’s temperature patterns still appear cold enough to support physical values at around nearby screen levels,” said Jim Ritterbusch of Ritterbusch and Associates. He noted that temperature differentials in key consuming markets later in the week are “sufficient to boost spot prices considerably.”

Meteorologist John Dee in his one- to five-day forecast says “below-average temps will dominate areas of the U.S. to the north and west of a line from northern Texas to Lake Erie for all of the week ahead. Departures will be largest across the Rockies, the southern three-fourths of the Plains and into the western Midwest, where departures will be five to 10 degrees below average.” He added that while the East and especially the Southeast temperatures early this week were expected to be well above normal, “by the end of the week, temperatures across the [Northeast] U.S. from PA north will be falling to around three to eight degrees below average, while temperatures across the [Southeast] U.S. fall to average to a few degrees below average.”

Although he didn’t give an exact figure, Ritterbusch expects the first triple-digit withdrawal of the season in this week’s inventory report to enhance the bullish flavor to the market. “An additional bullish item would be the likelihood of the first triple-digit storage withdrawal of the season when Thursday’s EIA figures are released. As a matter of fact, this week’s withdrawal should prove sufficient to eliminate a record supply per date by shifting storage levels back to a deficit relative to a year ago when an exceptionally mild December was slowing supply declines.”

A hefty pull may already be factored into the market. Last year 146 Bcf was withdrawn, and the five-year average is for a 132 Bcf draw.

The Washington, DC, broker said he was looking for a withdrawal of 120-130 Bcf. “A draw in that category would be bullish at face value, but it was also colder last week,” he said. “I think we would have to string a few triple-digit withdrawals in a row in order to really shake up this market. That just doesn’t appear likely.”

He noted that Chief Long-Range Forecaster Joe Bastardi sees a warm-up on the horizon. “Bastardi said the first 10 days of December were cold, the second 10 days are going to be back and forth, and the third 10 days are going to be warm, leading into a warm January,” the broker said. “That type of thing sort of counterbalances the possibility of a triple-digit withdrawal. With that kind of forecast, there would appear to be no bullish follow-through.”

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