Prompt-month natural gas futures shot exactly 18.1 cents higher for a second consecutive session Friday as traders and analysts debated without consensus the reasoning for the renewed bout of strength. After reaching a high of $7.985, the February natural gas contract — which expires Tuesday — closed out the day at $7.983, just a penny short of the previous Friday’s finish.

“Our model is still in slightly bearish mode,” said a Washington, DC-based broker. “We basically are right back up to where we actually began the break lower, so it will be interesting to see how we fare in the coming week.”

He noted that while the last two days of gains were impressive, the preceding six straight days of declines put the action into a better perspective. “When you look at this thing, you realize we haven’t really even retraced half of that sell-off from $8.500 to $7.600,” he said. “We are sort of back to where we started the week, so it was actually a wash. Whether the bulls will find anything more to go on remains to be seen. If we get above $8, it will be interesting to see if some selling is triggered.”

The broker noted that the late-week strength could be attributed to a couple of factors, including fear of a gigantic withdrawal in the next storage report and concerns related to the “possible leaks” offshore Louisiana on El Paso’s Tennessee Gas Pipeline. The company issued more than one force majeure over the last few days (see Transportation Notes).

“I don’t know if the Tennessee news frightened some buyers or whether rumors on the size of the upcoming storage report forced some hands,” said the broker. “We also could be looking at a ‘buy the rumor, sell the fact’ type of scenario regarding the natural gas storage report for the week ended Jan. 25. Some people in the industry are saying that Thursday’s storage report could be the largest one ever. The 300 Bcf withdrawal number is even being thrown around. I really did not think it was that cold this past week, but I guess anything is possible. Beyond that report, there is not a whole lot out there supporting the bullish case.”

Thursday’s futures market gain of 18.1 cents in the February contract had market technicians eyeing a case for higher prices in the near term. Walter Zimmerman of United Energy said natural gas futures have held their “key support zone” and may be headed higher. Going into Friday’s session, Zimmerman said Thursday was a start, but the bulls need follow-through on the upside. Two major obstacles stood in the way of a continued advance, according to Zimmerman. “Peg $7.895 the first hurdle as 50% of the $8.220 to $7.570 decline. A close above $7.895 opens room to the next hurdle at $8.135 as 0.618 [retracement] of $8.481 to $7.570,” he said in a note to clients.

Looking ahead, the weather forecast looks bullish or bearish depending on which half of the country you’re in. According to the National Weather Service’s latest six- to 10-day forecast covering Jan. 31 through Feb. 4, warmer-than-normal temperatures will dominate east of a swooping line from central Texas up through western Michigan, while west of a line from the Texas-New Mexico border up through central North Dakota is expected to exhibit colder-than-normal readings. Temperatures between those two lines should be normal for the period.

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