Taking back a little of what it gave away on Tuesday, February natural gas futures climbed higher on Wednesday as its petroleum counterparts slipped. The natural gas prompt month notched a high of $6.33 before settling at $6.293, up 15.6 cents on the session.

Although the trading range between $6.15 and $6.33 was small by most accounts, the swings within the range were another story. After notching the high just before 11 a.m. (EST), the prompt month collapsed within the next half-hour to record the day’s low. From there, February futures worked their way higher before spending the final hour-and-a-half trading between $6.26 and $6.32.

While natural gas recorded a gain, heating oil and crude futures either remained static or recorded a small decline Wednesday. February heating oil settled down less than a cent at $1.3426/gallon, while February crude closed down 88 cents at $47.55/bbl.

On the weather watch, the National Weather Service has moderated its six-to-10-day outlook significantly over the past few days. Instead of the entire East remaining in a cold spell, the agency is now calling for only a sliver of the Southeast coast to record below normal temperatures in the Jan. 25-29 period, with the rest of the East, as well as the Northwest experiencing normal temperatures. The entire middle of the country is expected to be warmer than normal during this time.

“The natural gas futures trend is still down,” said Tom Saal of Commercial Brokerage Corp. in Miami. “However, we are starting to see some semblance of a bottoming pattern because we are seeing higher highs and higher lows intermixed with a few blowout days. While that could be the beginning of something — until you take out the downtrend you really can’t get too aggressive on the long side just yet.”

In the most recent report of open interest by the Commodity Futures Trading Commission (CFTC), a whopping net short position of 54,882 contracts was reported as of Jan. 11 by non-commercial traders. This represents an increase of 7,249 contracts from the prior week.

On only two other occasions has the non-commercial segment held a larger net short position. During November 2003, the non-commercial traders held a peak net short futures position of 52,684. The record was set in January 2002, when non-commercials held a peak net short futures position of 62,643.

The first two times that non-commercials were significantly net short, they stayed more than 40,000 contracts net short for seven weeks before covering those shorts. In both previous instances, once the non-commercials began to buy, natural gas prices went significantly higher.

Referring to the non-commercials’ near record amount of net short open interest, Saal said the market is currently in week five of what could be the seven week trend. “One thing I have to caution people about as we approach the record is history,” he said. “Last year on the long side we pushed a new record open interest position. That money that came in on the long side could come in on the short side this year, maybe forcing them to be even more short. I’m not saying that this is the case, but historically when the funds get very short, you don’t want to be selling.”

Noting that the East is experiencing the coldest weather of the season right now, Saal said the longevity of the cold could hold the key. “Up until now, we have been trending down because we haven’t had any serious weather. If this current front continues to stick around and the market does not go a lot lower, I could see us taking a trendline out. We know who those buyers are going to be,” Saal said, referring to the non-commercials. “Since they haven’t taken the trend out, we just have to be a little patient here.”

There is currently an awful lot of gas in the ground, Saal said, adding that there is the possibility there still will be after the heating season is over. If it doesn’t get used up during the winter, Saal pointed out that the futures market will focus on the summer, with heat forecasts, hurricanes and the like. “Just when you think you have it all figured out, we turn the page and focus on another season,” he said.

Looking towards the Energy Information Administration’s (EIA) natural gas storage report for the week ended Jan. 14, the market consensus for Friday’s report is a 106 Bcf draw, said Tim Evans of IFR Energy Services. The analyst stated that the projection might be a tad high, adding that he expects the report to reveal a 90-100 Bcf withdrawal.

“Heating degree day accumulations for the relevant period were just two higher than in the week before, when 88 Bcf was pulled from storage,” Evans said. “The full range of expectations is below the 133 Bcf five-year average draw though, so it looks quite likely that the year-on-five-year surplus will grow somewhat larger before it shrinks, if that is even what it is destined to do.”

Citigroup’s Kyle Cooper said that while he estimates that the draw will be between 120 Bcf and 110 Bcf, his confidence is “exceedingly low” because the models again indicate a wide disparity.

The report, which will be released on Friday morning between 10:30 a.m. and 10:40 a.m. (EST) due to the presidential inauguration on Thursday, will also be compared to last year’s 155 Bcf withdrawal.

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