After gapping lower to open Friday at $14.850, January natural gas climbed quickly in the first hour of trading, producing fear that the market was going to spike again like it did Thursday. After reaching a new all-time prompt month high of $15.200 at 10:44 a.m. EST, January backed down, putting to rest the possibility of back-to-back spikes. The front month ended up closing at $14.312, down 68.2 cents on the day but 38.1 cents higher than the previous Friday’s settle.

Traders were still picking up the pieces Friday from Thursday’s explosion, which saw January natural gas shoot $1.294 higher to close at a prompt-month record $14.994.

“I think the big run-up Thursday could be attributed largely to funds liquidating short positions,” a Washington, DC-based broker said. “On Friday we made another new high at $15.200, but then we closed down significantly into Thursday’s range. Unless it was done on absolutely no volume, I would have to say it sort of checked the meteoric rise from Thursday. There was a significant chunk of selling that came in Friday.”

The broker noted that the question is who was selling and whether or not they have “enough ammo” to continue selling next week if the weather moderates.

“Talking to a lot of producers and marketers Friday, I urged them to take advantage to lock in some sales at this price level,” he said. “Like we saw after the hurricanes, futures can sell off $4 rather quickly after a spike. I didn’t have a whole lot of success giving that advice on Friday, but I wasn’t laughed at either. Producers are the ones who could possibly come in and really sell this thing again next week, but it depends on the weather. Yes, next week is supposed to be a little bit warmer, but forecasters such as AccuWeather.com’s Joe Bastardi are talking about some pretty below-average cold from Dec. 20 to Dec. 30.”

Because the country is in this cold period, the broker said a complete collapse of natgas prices is unlikely. “Talking to our marketers for end-users, there was almost no buying on the week,” the broker said. “I think these end-users have been trained now so that if we were to have another sell-off, they would come in buying to get what they could.

“Overall, I don’t think the bull is dead by any means. I think this hyperbolic move may be over for a moment, but I wouldn’t expect to see a massive breakdown in prices with this medium-term weather out there.”

Traders pointed out that figures such as storage levels like the 59 Bcf draw reported by the Energy Information Administration Thursday are often fully taken into account by the market, and often what causes large price moves such as Thursday’s titanic advance of $1.294 is the anticipated change in storage in response to current weather conditions.

“Current storage levels are always well discounted and as such provide limited pricing impetus,” said Jim Ritterbusch of Ritterbusch and Associates. “However, the dynamic of a contraction in the supply surplus is an important pricing catalyst that cannot be ignored and one that can often result in the market overshooting upside targets.”

Any contraction of the supply surplus and winter supplies are foremost on the minds of traders. Michael Schick of Energy Analytics in Houston expects a draw of 182 Bcf for the week ended Dec. 9 with the following two withdrawals in the neighborhood of 150 Bcf. He points out that this would mark the first period since the immediate aftermath of the Gulf of Mexico hurricanes that storage changes are bullish relative to the five-year average. He expected that the cumulative withdrawal for the three weeks through Dec. 23 would be 482 Bcf, about 128 Bcf more than the five-year average.

Clearly traders are also focused on current weather conditions as the important market dynamic just as temperatures are moderating to the west and cold stormy weather bludgeons eastern markets. Michael Palmerino, a forecaster at Lexington, MA-based Meteorlogix LLC, said temperatures in the Northeast should be two to six degrees below normal through this week. The normal low in New York at this time of year is 32 degrees Fahrenheit (0 Celsius) and in Boston the low is usually 28 degrees (minus 2 Celsius), he said.

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