In sympathy with a late rally experienced by the rest of the energy complex, natural gas futures surged higher into the close Monday, as speculative fund and local traders covered shorts and propelled the market to its fourth-straight gain. After gapping lower at the opening bell, the momentum quickly turned in bulls’ favor as buyers stepped up and pressured the March contract through key technical levels at $2.16 and $2.21. Sellers backed away once the market had pierced $2.21, leaving buyers little choice but to bid up the market higher. The March contract finished at $2.286, up 9.5 cents or 4.3% for the session.

Traders were quick to point to the announcement yesterday by the Department of Energy that the Royal Dutch/Shell-Equiva joint venture will deliver 18.6 million barrels of oil into the U.S. Strategic Petroleum Reserve (SPR) starting April 2002, as a reason for the strength in the entire hydrocarbon complex. March crude was up $1.15 or more than 5.5% Monday to close at $21.41. Meanwhile, March heating oil and Brent crude contracts gained 5.3 and 8.5 percent respectively.

Also weighing on energy traders minds is the increasing international tension following Bush’s reference to the “axis of evil,” which is comprised of the oil exporting nations of Iran and Iraq, plus North Korea. It is feared that a preemptive strike against, or even just a continued decline of relations with these countries, could lead to a disruption in oil supply to the western world. This uncertainty, says Jay Levine of Advest Inc., “combined with the SPR refill, the Middle East situation and the high level of speculative shorts in the market has helped to stem any sharp decline.”

Although not thoroughly convinced natural gas has seen its bottom, Levine is gently prodding his end-use clients to take advantage of what might turn out to be bargain prices. To this end, he was endorsing nearly costless collars Monday. “You could have bought a $2.50 July call and sold a $2.30 July put [Monday] morning for just 3 cents. That’s is not a bad price for a little protection against a rally, he offered.

“The fundamentals are still gruesome. The only thing holding this thing up is that people are beginning to believe that the bottom may be in place. The risk — particularly in the long-term — is to the upside,” Levine added.

In daily technicals, support is seen at previous resistance points at $2.21 and $2.16. Resistance exists at the Jan. 17 high for March at $2.38, ahead of more substantial selling near the $2.50-535 chart gap etched Jan. 2.

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