December natural gas futures showed some comfort with its current price level a day ahead of expiration as the contract traded in a fairly slim 17.4-cent range before closing out Monday’s regular session at $4.473, up 4.9 cents from Friday’s finish.

After putting in a high in the morning of $4.580, the prompt-month contract sunk to an afternoon low of $4.406 before closing out the day. A few traders told NGI that volumes were light on Monday, likely due to the holiday week timing and the current moderate temperatures.

“Trading activity on Monday was pretty quiet. I’m not sure we’re going to see any real moves before the December contract goes off the board on Tuesday,” said Julio Sera, a broker with Hencorp Futures in Miami. “I think most people got their end-of-the-month stuff done early because of the holiday week. A lot of book squaring took place last week as a result.”

Looking ahead, Sera told NGI that market participants are waiting on weather developments — or the lack thereof — before choosing a price direction. “The market is waiting to see whether we get some confirmation of these cold winter weather reports. The National Weather Service is starting to come in line with some of these private forecasters in calling for a very cold December. If we see that come to fruition, I think we’ll see some fireworks to the upside. This is likely one of the reasons that we’ve seen some short-covering activity over the last few days. If we get the weather, high prices are on the menu. However, if we don’t get the weather, I don’t think there is far to fall. We’ll likely stick right around the current price level.”

Near-term weather forecasts call for somewhat cooler temperatures. The MDA EarthSat six- to 10-day forecast calls for below-normal temperatures in the Rocky Mountains and Southeast, but the remainder of the country, including the large energy markets of the East and Midwest, is expected to have normal temperatures. “A transition from a warm-dominated pattern to a mixed/cooler pattern will take place during this time frame. An upper trough along the East [Coast] early will produce below [-normal temperatures] but will quickly weaken, allowing temperatures to rebound towards normal levels,” the forecaster said in its morning energy report. The dominant weather feature consisted of a hybrid area of high pressure progressing from the Northwest early into the south-central United States by the second half of the week, resulting in cooler trends.

Some analysts see the market under continued pressure from producers anxious to lock in prices. “Hedge selling continues to pressure the gas market. There are a lot of natural gas companies that have production costs which are way too high at this time. The rallies have been short-lived because these companies feel tremendous pressure to sell on the rallies,” said Mike DeVooght, president of DEVO Capital, a trading and risk management firm in Colorado. DeVooght said it’s hard to tell when the selling will abate. “We will need to either see a significant uptick in demand (seems unlikely in the near future) or we will need to see a drop in production, which is unlikely unless the market breaks more significantly under the cost of production (especially on the forward curve).”

Indications are that speculative accounts don’t see the hedge selling ending anytime soon. Government reports show a huge shift in the positions held by managed money. On Friday after the close of trading the Commodity Futures Trading Commission reported that the number of combined futures and options positions held by funds and managed accounts shifted heavily to the short side. For the week ended Nov. 17 short contracts increased by 18,230 to 198,644 and the number of long contracts fell by 6,484 to 131,550 for a net swing of more than 24,000 contracts. For the five trading days ended Nov. 17 December futures rose 6.3 cents to $4.530.

Taking into account the Thursday holiday for Thanksgiving, the Energy Information Administration reported that the release of fresh storage data will be moved up one day. Data for the week ending Nov. 20 will be released at noon EST on Wednesday.

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