Stuck within the recent trading range of $7.500 to $8.500, natural gas futures traders appear unable to reconcile the current price level with record storage levels and forecasts for a warm winter. On Tuesday, December natural gas futures punched back up above $8 for a second consecutive session, but much like Monday, traders were unable to sustain the momentum as the contract fell in the afternoon to close at $7.949, down 1.2 cents on the day.

Even as’s Joe Bastardi continued to call for a “very warm winter” for much of the nation (see related story), the prompt-month contract reached a high of $8.120 on Monday before receding in the afternoon. Traders are mostly in agreement that the market — which is trading above fundamentals — truly appears directionless.

“We have been selling crude futures like crazy the last three days, but over in natural gas futures, prices appear to be defying gravity,” said a Washington, DC-based broker. “We continue to get panic calls from some of our producers talking about the Barnett Shale play and how much gas is expected to come out of it. They are concerned that if there is no winter to speak of, they are going to be up to their eyeballs with gas, so ‘sell everything.’

“However, the market refuses to drop. In talking to clients, hedge funds and partners, nobody understands how gas futures prices are staying afloat, but technically the market picture looks OK. Believe it or not, there are technical numbers that take us back up to $8.500.”

She added that her firm is currently long on natural gas, despite naysayers and bearish fundamentals. “Our technical systems have been long, even as people tell us that we are insane,” the broker said. “I thought we were going to get stopped out last week on the run-up, but you just can’t seem to shoot this thing. I still think you have people who are scared to death to sell this thing really aggressively ahead of winter, but nobody really wants to buy it either, so you wind up in these trading ranges. Resistance indicators appear to be up around $8.300, but my momentum indicators are flat as a pancake. They read ‘no trend.'”

The broker noted that recent selling in crude appears to have done some significant damage on that chart. After recording a $98.10/bbl intraday high last Wednesday, December crude has dropped significantly, with the largest blow being delivered Tuesday. The contract settled at $91.17/bbl on Tuesday, down a whopping $3.45 from Monday’s close.

In natural gas, some market technicians are grappling with whether the recent advance is merely a correction from when December futures posted a $8.712 high on Friday, Nov. 2, or whether prices might be ready for a sustained advance. “Even in the most bearish case where this rebound from the $7.505 low is only the bear market correction of the decline from the $8.712 low, we expect to at least see the $8.175-8.250 area [tested],” said Walter Zimmerman of United Energy.

According to Zimmerman’s analysis, if the market is going to make an advance above $8.712 and invalidate the notion that $8.712 was the typical preseason rally that the natural gas market often demonstrates, then it will have to make a “decisive” close over $8.455. Going into Tuesday’s session, Zimmerman pegged near-term resistance at $8.115, which ended up being a half-cent from Tuesday’s top. Above that level, Zimmerman sees $8.175.

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