Spurred higher by somewhat colder temperatures and a spooked crude futures market, February natural gas started Tuesday above $9 and continued higher from there. The prompt month peaked at $9.290 just before settling at $9.168, up 37.7 cents from Friday’s close.

“With its break above the 50-bar moving average at $9.12, the market is making its strongest case in a while for a technical correction,” said Tim Evans, an analyst with IFR Energy Services. “The weather outlook remains bearish, though, so we don’t expect much.”

While the overall weather picture remains bearish, some seasonal cold in a number of regions over the weekend at least reminded people that the country is in the heart of winter. Of more substance was the continued strength in the petroleum futures sector, sparked by attacks on Nigerian oil production and continued background tensions of Iranian nuclear aspirations.

The strength in crude oil is derived from overseas tensions, and a supportive force for natural gas may be in place for the remainder of the heating season. “The Iranian nuclear issue will likely be around for some time and could maintain support [for] the [energy] complex given the importance of Iran as a global oil supplier with production around 4 MB/D,” said Jim Ritterbusch of Ritterbusch and Associates. The bull move in crude oil is still in place and “short of a dramatic breakthrough in the Iranian nuclear situation, some renewed strength appears likely (this) week.”

On Tuesday, February crude jumped $2.39 to settle at $66.31/bbl, while February heating oil closed 7.65 cents higher to settle at $1.7915/gallon.

“Any sanctions imposed against Iran, which exports 2.4 million barrels a day, could affect output, and with very little spare capacity in the world, this could send prices soaring,” said analysts at Sucden Commodity brokers.

Looking at natural gas inventories, Evans said he expects to see a larger withdrawal in this week’s report for stocks as of Jan.13, but he still expects the withdrawal to pale in comparison to historical data. “We’re expecting Thursday’s DOE storage report to show some evidence that industrial consumption curtailed over the holidays has recovered, but with temperatures even milder than in the prior period, we don’t think the net withdrawal will amount to more than 40-50 Bcf,” said Evans. “Comparisons with the 110 Bcf draw from last year and the 131 Bcf five-year average will thus remain bearish, with the 276 Bcf year-on-five year average surplus ballooning even further.”

He added that without some “quantum shift” in the temperature outlook, the market simply lacks a credible threat to supplies that would contribute to an upward price correction.

It appears natural gas bears still have weather on their side. According to the National Weather Service’s forecast for the week ending Jan. 21, the large energy markets of the East and industrial Midwest can expect another dose of much warmer-than-normal temperatures. For New Jersey, New York and Pennsylvania the NWS predicts a tally of 216 heating degree days (HDD), or 48 below normal, and for Ohio, Indiana, Illinois, and Wisconsin 216 HDD are also anticipated, which is a hefty 81 HDD below normal. The contrasts are even more startling when compared to last year. The 216 HDD accumulation is 117 HDD less than last year for the Northeast states and 129 HDD fewer than the Midwest.

Of importance is the recent trading activity of the noncommercials, which can sometimes be used as a market direction indicator. The Commodity Futures Trading Commission’s Commitments of Traders data for the week ended Jan. 10 showed the key reportable, noncommercial category adding 3,043 contracts to its net short exposure, leaving these fund managers holding 46,947 contracts.

“This is their largest holding since they were 50,181 contracts short as of November 29,” said Evans. “While this may prove a useful benchmark to suggest the funds may be close to reaching a maximum, we note the last cycle of selling was ended by a cold snap, not an exhaustion of funds. Further selling, to rival or exceed the 62,643 contract all-time extreme of Jan. 22, 2002 may be possible if the fundamentals remain weak.”

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