February natural gas futures released 29.5 cents of weather premium on Monday as reports forecast a warm-up to arrive late this weekend into next week. After recording a new high for the bull move of $6.108 just four days ago, the prompt-month contract closed Monday’s regular session at $5.454.

“While it is still very cold in a number of high gas demand regions around the country, there is a reason they call this the ‘futures market,'” a New York trader told NGI. “When the cold was forecasted ahead, we popped up above $6. Now that temps look like they could pull back in a week’s time, traders are backing off their positions a bit. In a futures market everyone normally tries to stay ahead of reality and this situation is no different. If another cold stretch works its way in after the warm-up, then we’ll be right back where we were last week pricewise.”

Just as the East and Midwest had to endure brutal cold the last two weeks, weather forecasts now call for what could be a market-changing influx of warm temperatures. According to MDA EarthSat, the six-to 10-day period begins in “interesting” fashion along the East Coast as its weather models continue to oscillate on a potential wintry storm.

“Occasional runs of the American and European [models] show a storm arriving out of the South on Sunday, threatening temps colder both during and after this event. Beyond this feature, stronger ridging looks to provide above- to much-above-normal temperatures for much of the Midwest and central U.S. early on,” the forecaster said. “This occurs in several waves, including both early and late in the six- to 10-day period. Today’s composite [forecast] is warmer vs. yesterday, including the expansion of much-above [normal temperatures] to shift more eastward during the period.”

The National Weather Service’s six- to 10-day forecast covering Jan. 17-21 calls for above-normal temperatures for the Pacific Northwest, much of the Midwest and Great Lakes regions, the Northeast and most of the Mid-Atlantic. The Southwest diagonally down into South Texas is expected to experience below-normal temperatures while the remainder of the country should see conditions on par with normal.

Analysts note that although crude oil remains perched loftily above $80/bbl ($82.52/bbl on Monday’s regular session close), natural gas bulls can’t catch a break. “The gas market was able to rally above the $6 level briefly midweek, [but] hedge selling pushed the market back below $6 in short order,” said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. According to DeVooght, the natural gas market continues to be weak and cannot attract investment dollars like other commodities. “The weekly storage number came in close to market expectations and failed to be a market-mover. On a trading basis, we will continue to hold our floors and collars,” he said.

Trading accounts and end-users should stand aside and those with exposure to falling prices should continue to hold a collar consisting of a $5 put and $8 call begun in August at a cost of 35 cents as well as a 12-month $5.50 put offset with a 12-month $7.50 call initiated in December, he said.

That component of the market least likely to be concerned with hedging a physical gas position sold more heavily than it bought, according to data from the Commodity Futures Trading Commission. For the week ending Jan. 5, the managed money portion of the market increased holdings of both long and short combined futures and options contracts. Long positions were 135,655 contracts, an increase of 2,902, but shorts rose by 7,631 to 167,608. Total open interest in futures and options held by all parties rose by 23,496 to 905,434. For the five trading days ended Jan. 5, February futures fell 20.3 cents to $5.637.

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