January natural gas drifted lower and February inched higher in uninspired trading Tuesday such that even options expiration could not whet trader appetites. Traders noted no attempts to either attack or defend nearby options strikes, and futures prices settled within fractions of Friday’s close. At the closing bell January had slipped 0.2 cent to $3.112 and February had added 0.3 cent to $3.150. February crude oil rose $1.66 to $101.34/bbl.

“Crude oil is able to rally, but we can’t find anything that will get natural gas going with all the excess along with the warm weather across the country,” said a New York floor trader.

“It was 65 degrees on Thursday and it did get a little colder over the weekend, but I’m not seeing anything below normal at all. It looks like the next [support] level is the $2.92-2.95 area in the next few days. I think the recent lows in the January contract [$3.05] are vulnerable and we’ll definitely test the February contract equivalent this week or next week.”

January natural gas futures expire Wednesday.

Traders charged with the responsibility of determining the market’s next major move favored the long side of the market, according to recent government data. The Commodity Futures Trading Commission in its Commitments of Traders Report for Dec. 20 showed increases by managed money in open interest in both short and long positions but with a definite edge to the long side.

At IntercontinentalExchange, directional traders added 33,300 long futures and options (2,500 MMBtu per contract) to bring total long positions to 422,620 contracts. Short futures and options increased by 28,044 to 264,426 contracts. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) increased by 3,514 to 145,952 and short holdings grew by just 417 to 261,994. When adjusted for contract size, long futures and options at both exchanges rose by 11,839 and short contracts increased by 7,428.

For the five trading days ended Dec. 20 January futures fell 15.1 cents to $3.128.

Analysts see a need for some brutal cold to raise prices. “[I]t is going to take something major to turn this market around, at least in any meaningful way longer term. We need extended and sustained cold weather with bitterly cold readings at the same time in Texas, the Great Lakes and the Northeast,” said Peter Beutel, publisher of Daily Oil Hedger. “That kind of cold weather over a sustained period would turn prices around.”

Beutel contends that gas storage and storage dynamics are the overall price drivers. “Stocks are 235 Bcf higher than a year ago, against a surplus of 23 Bcf (0.60%) four weeks ago…Storage levels are typically the result of weather patterns. But they are the only factor that can change in a way that can alter the supply-demand balance.

“As we end this year, this looks like a one-way street. Prices are, and have been, oversold, but those rallies have not had any real rock to build upon. Without a change in the weather over the next six weeks, this is likely to remain a bear market.”

Updated weather forecasts have changed from the pervasive above-normal forecasts of last week. Commodity Weather Group of Bethesda, MD, predicts normal temperatures from Maine to West Texas with above-normal temperatures anticipated in the northern Plains and Rocky Mountain West. Below-normal temperatures are confined to Florida and small sections of the Southeast.

“The weather models are actually in agreement on a colder-than-normal East Coast next week. Our current map is just normal in the East though due to a warm day six (Sunday),” said Matt Rogers, president of the firm. “But we are also cautious given the lack of big blocking and only transient cold air connections. The European operational and ensemble guidance are actually the coldest models [Tuesday] for the Midwest, South and East. Despite these changes, the models are still not showing a sustained cold pattern set-up. The 11-15 day should shift more warming east across the nation once again as the West tries to go colder by late [in the period]. Trends in the models and other guidance suggest we might transition toward a colder pattern by the middle third of January.”

All may not be as bleak as it seems for the bulls as gas-directed rig counts continue to decline. The Dec. 22 report from Baker Hughes showed gas rigs falling 16 to 802, well below the 931 operating a year ago, and total U.S. rigs operating dropped by 11 to 2,008, still above the 1,714 drilling a year earlier. Horizontal rigs declined by 123 to 1,172, still more than the 959 working a year ago.

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.