Putting in yet another multiple record-breaking trade day, January natural gas on Tuesday gained 50+ cents for the second consecutive session to settle at $15.378, up 53.7 cents from Monday. In addition to eclipsing the old all-time high prompt month settle of $14.994 (Dec. 8), the January contract also set a new spot month high of $15.78 during the day, which was high enough to exceed January’s life-of-contract high of $15.600 (Oct. 5).

After gapping 60.9 cents higher in Access trading to open Tuesday at $15.450, January natural gas futures continued on to notch a morning high of $15.600 at 11:20 a.m. EST. The prompt month stayed within the $15.310 to $15.600 range until approximately 1 p.m. when the contract began climbing once again before settling lower. Some traders said the morning run-up was a result of local traders trying to part noncommercials from their short positions.

“I think we are seeing mostly locals trying to hold this market up to put pressure on funds to cover their short positions,” said Tom Saal of Commercial Brokerage Corp. in Miami. “The weather is cooperating with them so far. It’s not unbearably cold, but it is obviously colder than normal and I think that is all you need.”

Commenting just after noon EST on Tuesday, Saal said he wouldn’t be surprised to see January test its highs again, which the contract ended up doing in the afternoon. “It certainly is not a topping pattern…at least not yet,” he said.

While the Commodity Futures Trading Commission (CFTC) reported Friday that noncommercial accounts reduced their positions of net short (futures only) contracts substantially for the reporting period ended Dec. 6 from the 50,181 contracts the previous week, they still held 38,883 net short futures contracts.

“I think there is a good chance we will see another drop-off in noncommercial net short positions in this week’s CFTC report,” said Tim Evans, an analyst with IFR Energy Services. “It’s a question of how deep their pockets are. I think we could see a reduction of another 10,000 to 15,000 contracts.

“While we normally think of funds as being trend followers, it is pretty clear that when you have fund short positions in a market that is making new all-time highs, the funds are not necessarily following the price trend. It’s times like this that you wonder whether these funds actually do look at fundamentals. They might be seeing that storage levels are currently above normal. You don’t normally find markets with big inventories and big price tags.”

Evans said he believes the futures market might follow a similar path to the one seen following the hurricanes. “We have this expectation that we are going to be short on inventory, but the actual fundamentals may not fully confirm that expectation, so we have to see how much demand we may have choked off and we will have to see what the supply response is…both to the added physical demand as well as the high price level,” Evans said. “If we find yet again that the supply is more flexible than we have given credit for and there is greater deliverability to this market than we have been anticipating — much like we did following the hurricanes — then that’s grounds for disappointment.”

Evans added that because the weather was relatively well forecast here, the market may also get a cycle of “buy the forecast, sell the storage report.” The question, he says, is “what will constitute a bullish surprise in terms of storage when everyone is kind of prepared to see a number up around a 190 Bcf withdrawal for the week ended Dec. 9. Does a withdrawal number like 180 Bcf become disappointing, even though it dwarfs the five-year average withdrawal of 104 Bcf? It’s a big number, but it might not be big enough to sustain the bullish sentiment or to keep profit taking from setting in.” Evans said he is looking for a withdrawal between 180 Bcf and 200 Bcf when the report is released Thursday morning.

He advised that the other thing you have to take into account is past history. “We ignored last week’s bearish storage report because we preferred to look forward instead of looking back, so the million-dollar question is how much cold do we have left in front of us.”

Evans also wondered whether the market can sustain a perpetual uptrend. “Will traders want to take some profits ahead of the holidays or year-end?” he asked. “There are still plenty of moving parts in this market that have to be examined. They have not all frozen solid.”

Prior to trading on Tuesday, market technicians cited a strong case for further advances, but cautioned that the market is in dangerous territory. Walter Zimmerman of United Energy noted that Monday’s strength put a strong technical footing under the market.

Zimmerman injected a heavy caveat. “Based on 15-year averages, late November to February is the most dangerous time of the year to be long the natural gas market,” he said. “This tradition of December to February weakness was most recently seen in last years decline from an $8.325 high on the 29th of November [January 2005 contract] to a Feb. 17 low of $5.850 [March 2005 contract].”

The weather outlook continues to be a problem for market bears as well as for those who need to heat their homes. “December is shaping up to be a very cold month,” said Dale Mohler, senior meteorologist at AccuWeather.com. “It looks like we have a very cold air mass moving into the Great Lakes, Northeast and Mid-Atlantic states.” Temperatures may fall near zero Fahrenheit just outside of New York by Wednesday, he predicted.

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