Coming off the holiday weekend, traders who once thought last week’s technical weakness solidified a bearish case are now being forced to rethink their outlook. April natural gas futures on Monday traded as high as $9.400 before settling the day at $9.329, up 26.4 cents from last Thursday’s close.

Even stranger is the fact that natural gas futures did not follow crude’s lead. Crude and natural gas futures as of late have been moving in the same general direction. May crude dropped to a low of $100.60/bbl before closing at $100.86/bbl, down 98 cents from Thursday.

Some market watchers pointed to the most recent Commodity Futures Trading Commission’s (CFTC) Commitments of Traders (COT) report. Citigroup analyst Tim Evans, who combines futures and options COT data for analysis, said the last report could explain some of the natural gas futures price fluctuations seen during March.

“The CFTC natural gas data March 18 shows reportable, noncommercial traders taking profits on 19,411 contracts of previously established long positions and covering 41,664 lots of pre-existing short positions,” Evans said. “Some of this may have coincided with prices in the $10 area March 12-14, as well as into the sell-off March 17-18. The net purchase of 22,253 contracts reduces the cumulative net long position to 158,964 lots. This still represents a very large bet that natural gas prices will fall, which could fuel ongoing buying on dips or short-covering spikes going forward. The shorts represent future buying, one way or the other. And while the size of the exposure is less extreme than before, we still consider it substantial, with only three recent weekly readings showing a larger position at risk.”

Following the previous Monday’s precipitous 76.8-cent decline in April futures to $9.100, market technicians analyzing trends, cycles and retracements gave the market little chance of continuing its late-winter advance. According to Walter Zimmerman of United Energy, it would take a close below $8.930 to cement the bearish case and market bears could look forward to targets in the $6.900 to $6.435 range in spot futures. That didn’t happen.

Zimmerman’s analysis shows that $6.900 and $6.435 “mark an average seasonal decline and the 0.618 retracement of the $4.050 to $10.294 rally. However, Thursday’s [trade] did not close below the key $8.930 level. In fact, Thursday’s gave a big potential doji star bottom. Our most bullish case is a double top into the $10.310-10.740 [range],” he said in a Monday morning report to clients. Zimmerman pegged near-term support at $8.880 and resistance at $9.670.

Near-term weather forecasts may also tilt the deck in favor of the bulls. MDA EarthSat expects cooler temperatures in key eastern markets in its six- to 10-day forecast. “Cool weather remains mired in areas from the Upper Midwest to the Northeast again [Monday],” said Matt Rogers in a morning report. He did admit there were “very stark differences in model timing and intensity with cold in the coming 10 days.” He said that the American and European weather models that his company follows showed mild temperatures during the early portion of the six- to 10-day period, but the American model quickly expands a large area of cold air into the East, and the European model cools the East briefly and then returns warm air conditions. On a scale of one to 10 Rogers rates confidence in the forecast at six.

Other weather watchers said they saw cold impacting the Midwest and East headed into this coming weekend. “Last week was quite a bit warmer than the previous several weeks on a population-weighted basis since the focus of the cold anomalies shifted from the Midwest and East into the Interior West and Rockies,” said Lehman Brothers analyst Daniel Guertin. “This allowed much warmer weather to develop across Texas and the southern U.S., but cool anomalies still lingered in the Great Lakes and New England. This week’s warmth will add to last week’s warm anomalies in Texas and the southern U.S., and March 2008 will end up warmer than normal for much of Texas and the Southeast. Meanwhile, a rather chilly pattern will remain in place across the Great Lakes this week, but the West will trend much warmer than last week.” Guertin added that Canada will “remain colder than normal,” and some of this cold air will “move southward into the Midwest and East this weekend and early next week.”

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