With little in the way of fresh fundamental or technical news, natural gas futures traders played it safe Tuesday as they remained mostly on the sidelines in the abbreviated pre-holiday session. Gas futures trading shut down at 1 p.m. EST Tuesday and was set to re-open with Access trading Wednesday at 7 p.m. What activity there was Tuesday was dominated by locals who sold futures early only to cover those shorts late in the session. The net result was a market basically unchanged for the session. February closed the year at $4.789, down 1.1 cents on the day. Estimated volume was 48,835.

Following three straight months of colder-than-usual temperatures, the nation underwent a weather metamorphosis early this week. The warm air that brought mercury levels up to near the 60-degree mark across the Midwest Monday moved rapidly into the East Tuesday, bringing with it the likelihood of a very early January thaw for the region. In fact, much of the Northeast was expected to experience above freezing overnight temperatures to ring in the New Year. Physical gas prices were quick to react to the warmer temps, with swing deals at many locations for Jan. 1-2 suffering double-digit declines from their December counterparts. Gas delivered to the Henry Hub in Erath, LA was one of the markets hardest hit, tumbling 15 cents to average $4.60 Tuesday.

According to the latest six- to 10-day forecast released Tuesday by the National Weather Service, above normal temperatures are expected to set up across most of the country for the Jan. 6-10 time frame. Only the southeastern United States is expected to see colder-than-normal weather during that period. Further out, in its eight-to 14-day outlook, the NWS calls for more of the same through at least the middle of the month.

With these warmer than normal temperatures on the horizon, some traders are beginning to question their bullish posture. After having called the market correctly higher for much of the fourth quarter 2002, Tom Saal of Commercial Brokerage Corp. in Miami has turned his horns in and donned his bear coat. “Fundamentally speaking, we know nothing more now than we knew a year ago. You hear that rig counts are down and that production is declining, but there is still plenty of gas out there…We had a chilly October and a cold November and December. Now we have some above normal temperatures and the market is falling back down to earth,” said Saal.

“Buying natural gas futures is kinda like buying tickets to the Super Bowl. The price goes up with all the hype leading up to the game. Once the game starts, however, the price drops below face value of the ticket,” he continued. “In [natural gas] your design peak day is somewhere in the middle of January and January futures went off the board last Friday.”

However, others would point to dwindling storage reserves and disagree with Saal’s assertion that the market is fundamentally unchanged from a year ago. At 2,540 Bcf storage is currently 575 Bcf below year-ago levels and 80 Bcf less than the five-year average for this time of year. But after realizing a smaller-than-expected 95 Bcf withdrawal for the week ending Dec. 20, market-watchers are curious to see if the string of year-on-year storage declines is coming to an end when the Energy Information Administration releases updated data Friday at 10:30 a.m. EST.

Noting that his confidence for estimating storage withdrawals is shaky after overshooting last week’s release, Kyle Cooper of Salomon Smith Barney looks for a draw between 129 and 139 Bcf, versus a 126 Bcf takeaway from a year ago. “Last week’s report indicated a rather dramatic shift in the relationship of the actual report in relation to the model estimations and resulted in our estimation being high for the first time in many weeks…Considering the weather forecasts, we have not initiated any length, but do still consider the supply demand balance to be in a bullish situation,” he wrote in a note to customers Tuesday.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.