Boosted by higher cash market prices, natural gas futures gappedhigher at the open Monday as traders continued to make up groundlost in the precipitous decline early last week. However, insimilar fashion to last week, January futures ran into heavyoverhead selling, pressuring the market lower for much of thesession. The prompt month finished at $8.527, up 13.1 cents on theday, but off 67.3 cents from its $9.20 opening trade.

Traders were quick to point to cash prices, which gained between$1.30 and $2.00 at most market locations yesterday, as a reason forthe strong futures open. Henry Hub, the physical delivery point forthe natural gas futures contract, advanced $1.45 to $9.25.Meanwhile, Northern Natural Pipeline, which serves markets that didnot see temperatures above the single digits yesterday, gained morethan $2.00.

However, traders have learned that weather alone is not enoughto drive futures prices higher. Despite some of the coldest weatherand weather forecasts in years, the futures market tumbled morethan $2.00 in just over 48 hours last week. After gapping higherlast Monday, the January contract gapped lower Tuesday to create anisland reversal pattern. Although certainly not identical,yesterday’s failure move higher had some similarities with the onethat occurred last week, prompting sources to suggest more sellingis on tap for today.

If prices are able to filter lower this again this week, theywill have to do so despite what will likely be another bullishstorage figure released Wednesday afternoon. According to estimatesby Salomon Smith Barney, the American Gas Association will report a145-160 Bcf withdrawal from U.S. underground storage for the weekending Dec. 15, compared with 116 Bcf last year and 85 Bcf in 1998.Last week temperatures were roughly 21% colder-than-usual whiletemperatures were 4.8% warmer-than-usual in 1999, SSB said.

Last week the AGA announced 158 Bcf was taken from storage,widening the year-on-year deficit to 588 Bcf. Currently, storage is412 Bcf less than the 5-year average for this time of year.

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