After free-falling on the heels of another bearish storage report announced last week, natural gas futures rebounded modestly Friday as traders covered shorts ahead of the weekend. The January contract finished at $2.701, up 14 cents for the session, but down a cool 50 cents from its high notched just two days prior. Estimated volume was high as 135,604 contracts changed hands.

Most traders were not surprised by Friday’s advance. “In uncertain times it makes sense not to go home for the weekend in a prone position,” a trader said. “There were a fair number of shorts in the market Friday. When it became evident that we were not going to make new lows, the decision to cover was an easy one,” he said. By moving higher immediately following its $2.59 opening trade Friday, the January contract was never in striking distance of its 30-month low at $2.55 notched Thursday.

In addition to the usual uncertainty surrounding winter weather forecasts at this time of year, the aforementioned trader was undoubtedly also referring to the market’s unsure footing following the apparent demise of its largest player last week. January prices spiked to $3.20 Wednesday when the news first hit the wires that the Dynegy/Enron merger was off. However, the rally was short-lived as prices tumbled on yet another in a string of bearish storage reports. According to the American Gas Association, 12 Bcf was injected into underground storage facilities for the week ending Nov. 23, bringing gas levels to a record 3,144 Bcf.

Also of bearish influence last week was the continuation of unseasonably warm weather in the eastern U.S. A storm that dumped 10 feet of snow in the 2002 Olympic mountains of Utah and caused deaths and major traffic snarls across the Plains was nothing more than a warm rain by the time it reached the East. High temperatures in Washington DC, New York City and Boston that reached into the 60s and 70s Friday were some 15-20 degrees above normal.

Looking ahead, the outlook for gas demand in these areas does not look to improve too quickly. According to the latest six- to 10-day forecast released Friday by the National Weather Service, above-normal temperatures are expected to continue for the Eastern half of the country through at least Dec. 10.

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