January natural gas futures posted gains as near-term weather prompted buying, but traders were cautious about projecting the weather-driven gains further, and suggested that prices would have to reach higher thresholds to prompt additional gains. January futures rose 15.7 cents to $5.645 and February added 15.6 cents to $5.675. January crude oil dropped $1.77 to $44.51/bbl.

“If the market can get above $6, that should trigger some stop loss buying and boost prices,” said a New York floor trader. Unless that happens, though, he characterized the market as one of “sell the rallies.”

Analysts see current estimates of losses in industrial requirements as off the mark. “The loss of industrial demand is being grossly underestimated by the street,” said Tom Doremus of Crossbow Energy Advisors, a Connecticut-based energy consulting firm. Doremus notes that from April to September industrial demand was down 14%, “but that is what it normally does. The fall in industrial demand for September was the largest in five years,” he said.

The absolute level of industrial demand in Sept. 2008 of 15.9 Bcf/d was the lowest in eight years, according to Energy Information Administration (EIA) figures. In August, 2008 industrial demand tallied 17.8 Bcf/d. According to Doremus industrial demand is likely to fall 15%. The EIA in its December Short Term Energy Outlook forecasts 2008 industrial demand at 18.20 Bcf/d and 2009 industrial demand at 17.76 Bcf/d (see Daily GPI, Dec. 10). Doremus’ 15% decline from 18.20 Bcf/d would take industrial demand down to 15.47 Bcf/d for 2009.

Longer term observers expect prices to rise as production weakens from a lack of drilling of new wells. George Ellis, director at Bank of Montreal in New York, said the reason drilling and capital expenditures were getting cut was “because the demand isn’t there, and there is a lack of access to capital. People are saying you can’t get too bearish on this market for you are going to lose production, there is a lot less investment, capital expenditures are getting cut, etc.”

Others see a production-price cycle at work. “The bottom line in this market is that production is rising, in response to prices seen two or three years ago, and it is likely to continue rising at a time when industrial demand is falling,” said Peter Beutel of Cameron Hanover in a morning note to clients.

A broad swath of cold air is forecast to grip the country’s mid-section this week. The Weather Channel reports the high in Chicago Monday is expected to reach only 15 degrees, and the highest temperature expected all week is a frosty 33. The normal high in Chicago this time of year is 37. Denver is forecast to see a high of only 21 Monday and no reading above 34 for the remainder of the week. The seasonal average high in Denver is 46.

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