Coming off Monday’s cold-induced 31.2-cent gain, the natural gas futures market reversed course Tuesday as the February contract trimmed 24.7 cents to close at $5.637. Despite the retracement, some traders believe the bulls — with weather on their side — still have their eye on another test of the psychological $6 level.

The prompt-month contract recorded a high of $5.834 just before 10 a.m. EST Tuesday, then spent the rest of the day’s regular session trickling lower. Despite giving up almost all of Monday’s gain, the icebox-like conditions currently plaguing the entire eastern half of the United States look like they could be in play for some time to come. The outlook has claiming that the 2009-2010 winter could be the “worst” in 25 years (see Daily GPI, Jan. 5).

As bone-chilling as recent weather has been, top traders point out that the market is less likely to be influenced by near-term weather than in recent weeks. “We would reiterate that the sharp 25-30% price advance during the first three weeks of December was accentuated by the fact that the market was in its anticipatory phase as far as the heavy usage period was concerned,” said Jim Ritterbusch of Ritterbusch and Associates. “The market is now moving into its realization phase, a time period in which the weather factor will begin to subside as a pricing influence as total winter requirements acquire increased clarity.”

A Washington, DC-based broker said the bull move isn’t quite finished just yet. “Just as we saw in late December, futures were once again unable to get through $6,” he told NGI. “I suspect the big move higher on Monday awoke some producers who in turn sold into the strength, which is likely what played out on Tuesday. That said, we don’t think the bullish move in energies is done just because of a little bit of a pullback. I think we still have a little way to go before we see that reversal.”

Using the Elliot Wave theory, the broker said he believes the market is still in the fifth and final wave of the advance that began in early September. “Obviously, getting through $6 is critical. Past that, $6.250 is the next target. However, if we stall out too many more time then we’re likely done, but we can’t call it quite yet, especially with the cold forecasts still intact. I think we’ll likely see some more weather-driven demand, and some of the surveys out there are seeing industrial production upticks, which ought to be translating into some additional gas demand as well.”

Matt Rogers of the Maryland-based Commodity Weather Group reported that warming trends were still expected next week across the northern tier of states, but the powerful short-term cold being endured across the Midwest and East was forecast to strengthen again. The Midcontinent and South were expected to be the “same to colder in the 11-15 day period,” he said in a morning note to clients.

The onslaught of cold charging through the Midwest and East is expected to keep heating requirements high, according to National Weather Service (NWS) data. For the week ending Jan. 9 New England is expected to endure 279 heating degree days (HDD), or one more than normal, but New York, New Jersey and Pennsylvania can expect to shiver under 294 HDD, or 36 more than normal, and the Midwest from Ohio to Wisconsin can expect 346 HDD, or 53 more than normal. If this sounds colder than last week, it is. For the week ended Jan. 2 New England suffered through 261 HDD, the Mid-Atlantic states had 257 HDD, and the Midwest had 311 HDD.

Commodity funds and other managed accounts increased their natural gas holdings of both short and long positions in combined futures and options trading as shown in a government report. The Commodity Futures Trading Commission reported that for the trading week ended Dec. 29 managed money increased its long holdings by 5,642 contracts to 132,752 and short positions rose 8,883 to 159,977 contracts. For the abbreviated trading week ended Dec. 29 February natural gas futures rose 6.8 cents to $5.840. Total open interest declined 13,866 contracts to 881,937.

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