Adding to pre-holiday losses notched last Wednesday, natural gas futures gapped lower at the open bell Monday as traders learned that the bearish combination of storage and weather is unchanged from last week. However, after plumbing a $2.61 low shortly after the open, the December contract shuffled higher yesterday to retake a portion of its earlier losses. The prompt month finished at $2.696 down 11.7 cents for the session, but up 8.6 cents from its low Monday.

After rallying strongly Monday and Tuesday and then only inching lower Wednesday, traders were prepared for a big move on the open yesterday. Coming into the day, traders were aware that updated forecasts released this morning would be crucial to the price direction. As it turns out, they were right, because upon learning that the cold front will be slow to reach the populous areas on the East Coast, traders pressured the December contract to an opening nearly a dime beneath Wednesday’s low.

According to prominent industry forecaster Jon Davis of Salomon Smith Barney, air masses will be “regionalized” for at least the next week with cold air setting up over the Plains and Midwest and warm air sticking around in the Northeast and Mid-Atlantic U.S (see related story this issue). “From a population weighted basis, the big eastern cities from Boston down to DC will pretty much stay on the warm side all week long, whereas the middle of the country, in places like Texas and the western Great Lakes, will turn very cold over the next few days,” he said.

Also lingering on traders minds Monday was last Wednesday’s storage report and associated correction from the week before. The American Gas Association announced a 10 Bcf upward revision to the storage data for the week ending Nov. 9, which when summed with the actual 7 Bcf refill from that report along with the 15 Bcf injection for the week ending Nov. 16, added up to a net 32 Bcf increase in the amount of gas in underground storage facilities over the two week period. By comparison, the market withdrew a whopping 100 Bcf during the same two week period in 2000. Total gas in storage gas is now a record 95% full at 3,132 Bcf, which narrowly surpasses the previous peak from 1998 of 3,127 Bcf.

In daily technicals, December has support at yesterday’s low at $2.61, followed by last week’s low at $2.52. A break of these levels could initiate a long liquidation that might whisk the market 20-30 cents lower. On the upside, resistance is seen at the top of yesterday’s chart gap up to $2.735. Further selling is likely at the psychologically important $3.00 level.

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