After notching a new 16-month high and cutting a wide 27-cent trading range last Thursday, natural gas futures settled down on Friday as buyers stepped back to survey the situation. Without that buying pressure, the market dropped precipitously at mid-day only to rebound modestly at the closing bell. November closed at $4.239, down 6 cents for the session, but up 9.3 cents for the week.

While news and fundamental information sometimes dries up ahead of the weekend, that was not the case last Friday when traders had their choice of market-moving factors. Not the least of which is the weather forecast calling for below-normal temperatures through the end of the month across the eastern two-thirds of the nation. And although unseasonably cold in late October is not the same as below normal temperatures in December or January, it is the prolonged nature of the cold snap that has traders’ attention.

To go along with the bullish near-term outlook, meteorologists are looking for a less severe El Nino this winter than previously forecast, increasing the likelihood of normal temperatures. Even if the El Nino becomes a factor this winter, it is unlikely the country will experience such above normal mercury readings as last winter — one of the warmest on record. Also of bullish influence last week were storms across the Midwest and New England, which brought the first snows east of the Rockies thus far this winter. One of the reasons last winter was so mild, according to Jon Davis of Salomon Smith Barney, is that early snow cover in 2001 was the lowest since the National Oceanic and Atmospheric Administration began tracking snow depths back in the late 1960s.

However, the demand outlook was not the only pressing issue last week. Also of interest to market-watchers was the final storm tally from the Minerals Management Service. According to the MMS, 88.9 Bcf was knocked off the market between Sept. 23 and Oct 18 because of Hurricanes Isidore and Lili (see related story this issue) and as of Friday there was still 670 MMcf/d offline. Taking that into account, Kyle Cooper of Salomon Smith Barney looks for a storage refill in the low to mid 20 Bcf range. Last year at this time the market added 32 Bcf. Last week the market shot higher on the news that 48 Bcf was added to the ground for the week ending Oct. 11.

And although the fundamentals may be slightly in bulls’ favor, they do not even begin to rationalize gas at $4.25 prices, sources agree. Last year when storage was 60 Bcf lower, prices were 85 cents lower. For that reason, many traders are blaming the current price level on fund and speculative traders who buy and sell natural gas for profit rather than necessity.

“We are still in an uptrend,” said Peter Hattersley of New York-based Rafferty Technical Research. “We have major support down at $3.75-85 and overhead resistance from $4.41-50. Since we are closer to the top of that range, I would suggest taking some profits up here. We are looking to short this market in the $4.37-50 area, with a protective buy stop at $4.52. If you take out that level, all you have is the old high,” he reasoned.

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