Apparently convinced that the current frigid temperatures will be short-lived, natural gas bears came out in force Tuesday to record a new front-month natural gas futures low for the current down move. February futures penetrated the old prompt-month low of $5.210 recorded on Dec. 22 to put in a $5.158 tick before closing out Tuesday’s regular session at $5.184, down an astounding 35.8 cents from Monday’s close.

“I guess people are really expecting a lasting warm-up to be coming just around the bend,” said a Washington, DC-based broker. “We broke the old lows at $5.210, which certainly opens up the $5 even level for testing. I think we’ll battle around this $5.200 area for a bit and decide from there.

“The funny part about this week’s trading so far is the opposite paths of crude and gas. February crude futures got wiped out on Monday as natural gas inched higher. On Tuesday crude finished slightly higher while February natural gas got hammered for a 6.5% drop in value. It was a major move for natural gas, but I have no idea why it happened other than somebody believes that weather is going to evaporate and that we will all soon be walking around in shorts slathering on suntan lotion. Sure there is demand destruction tied to the slumping economy, but that is not a new revelation.”

The broker noted that the Energy Information Administration’s (EIA) Short Term Energy Outlook released Tuesday certainly had a bearish tint. The agency projects that the Henry Hub spot price will decline from an average of $9.13/Mcf in 2008 to $5.78/Mcf in 2009, but then increase in 2010 to an average of $6.63/Mcf (see related story).

“The EIA might be correct with their expectations of where prices are headed, but I don’t know whether the report was capable of moving that many trades,” the broker said. “The weakness Tuesday was all through calendar year 2010 and 2011, so it wasn’t a localized move.”

With $5.210 now taken out, the broker said $5 is now vulnerable. “Our Elliot Wave count was looking like the $5.210 low was a down wave complete with an up wave to follow. That thinking might have to be revised now. We could realistically see a four in front of this price; we’ll just have to wait and see how the weather shakes out.”

Some traders expect more sideways chop. “For a number of reasons prices are likely to head sideways for a while,” said Ed Kennedy, a broker with Hencorp Becstone Futures LC in Miami. He pointed out that production is up and there is sufficient gas in storage, but cold weather in key consuming markets was likely to counteract seemingly ample supplies. “It’s off the Richter Scale compared to what the National Weather Service was forecasting. The highs in Chicago will be in the single digits toward the end of the week, and it’s not supposed to remain this cold, but it is expected to remain cold for the rest of the month in the Chicago-Boston corridor,” he said.

Despite some talk of a warm-up coming after this week, the National Weather Service’s six- to 10-day forecast covering Jan. 19-23 still looks for below-normal temperatures for a little more than the eastern third of the United States. The eight- to 14-day outlook is even more ominous as below-normal temperatures will dominate north of a horizontal line running from Northern California through North Texas to the northern tip of South Carolina.

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