Buoyed by plummeting mercury levels in the eastern half of the country, the natural gas futures market continued on its meteoric rise Tuesday as speculative traders headed for the exits. However, in contrast to Monday’s session, the price action Tuesday was anything but straight-line, with the market having to work its way back from a midday sell-off.

The January contract saw the largest price swings and notched the biggest gain of any contract month, closing 29.6 cents higher at $5.579 in a session that saw a 34-cent trading range. At 100,196, estimated volume was heavy for the second day in a row, strong evidence that non-commercial players are behind the price hikes.

Market-watchers polled by NGI Tuesday were quick to point to the current spate of frigid air invading the East as a reason for the buying surge. Mercury readings of 10 to 20 degrees below normal in some locations were further intensified by high winds, dropping wind chills to the teens in parts of New England Tuesday. The cash market reacted accordingly, boosting New York-area deliveries past the $7.00 mark.

“And you thought this sort of performance was limited to German-engineered vehicles,” quipped a Washington, DC-based broker of the market’s 65-cent acceleration Monday and Tuesday. “At $5.283, Monday’s close in January futures was right on top of the contract’s 40-day moving average. [Tuesday’s] price action was pivotal. When the market opened higher, the rout was on.”

For the last couple of months, traders have become increasingly concerned with the growing net short position held by the non-commercial “fund” traders. In fact, many market-watchers believe that the market’s inability to drop below the $4.60 level during the month of November is a direct result of traders’ reluctance to press the short side of the market. According to the latest Commitments of Traders report released Monday by the Commodity Futures Trading Commission, non-commercial accounts were still net short 48,806 positions as of Nov. 25, down slightly from a peak of 52,244 short positions two weeks prior.

And though the bear side of the market looked very enticing over the last month or so, traders who resisted the temptation to short the market at those levels are now pleased with their decision, the broker continued. “Even if you make the case that we are still technically in a bear trend, there is no discounting this rally…. If we are able to fill in and move above the $5.66 chart gap from October, this thing would have a clear path to the $5.80 level.”

However, in order for prices to continue on the path to $6.00 and beyond, the market will need to get past some potentially bearish storage data, adds Tim Evans of IFR Pegasus in New York. “Thursday’s DOE report may be a preview of what’s to come, with a significant 20 Bcf draw still falling shy of the 29 Bcf five-year average decline.”

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