December natural gas made its debut as the spot futures contract by bounding higher Friday as traders cited the inevitability of weather-generated demand, and follow-the-leader-like buying as prices moved higher on heavy volume. At the close December had gained 15.9 cents to $3.923 and January was up 14.6 cents to $4.042. December crude oil digested a portion of Thursday’s large gains and settled 64 cents lower at $93.32/bbl.

“You knew this was bound to happen. When you look at the back months, the January and February [months], you know it was going to be over $4. We’re getting into the cold weather and it’s just a matter of time. We are looking to get snow here Saturday and also more northwest of us,” said a New York floor trader.

Traders noted that the advance was characterized by heavier-than-normal volume. “We saw 5,000-lot clips on Globex going off between $3.885 to $3.915, so someone was putting on some big positions. We’ve got 149,000 contracts [volume] and that is just in the December contract.”

Advancing much more in the short term could be a challenge. “$4 is a resistance point here for the December contract, but if you get over $4, you could easily see $4.10 to $4.15. The January, February, through May are now all over $4. For the front months to be over $4 is a big deal,” the trader said.

Traders aren’t necessarily convinced that a market turnaround is at hand. “All through September and October prices were sliding lower, but traditionally that is a period when natural gas is moving higher,” said a Washington, DC, broker. “Long natural gas in September is something that usually has a lot of seasonal strength. Normally the seasonal pattern on natural gas is pretty dynamic. September you rally really strongly through October and November and sometimes into December, then you have the big selloff late December into January.

“You can play that a number of different ways, getting long the December contract in September, but that didn’t work this year. That whole dynamic could have been shifted a couple of months or it could be one of those years where it just doesn’t go. I would tend to think the market isn’t going to rally as much because the supply situation has changed.”

He also noted that the overall economy was in poor shape, but “industrial consumption of gas has been skyrocketing higher because we do have the cheap gas and businesses that can say, ‘Make my petrochemicals using natural gas as a feed stock, make them in the U.S. because they’ve got great manufacturing capacity and good commodity prices.'”

The broker said some of his end-user clients were stepping up to the plate and putting on long hedges, but “they’ve got this wonderful human characteristic called greed. All the largest consumers of gas, the power companies, were happy as they rode the market down, but they have guys who watch the market and if it does pop up, they’ll step in and buy some. I think that’s what you had [Friday]. I don’t know if it lasts.”

Others also are not convinced the rally lasts. “[W]e viewed much of the advance as related to short-covering from the large speculators who are likely booking some profits ahead of month’s end. Some of this buying may have also been influenced by the fact that the market was able to easily absorb a seemingly bearish storage injection in yesterday’s [Thursday’s] weekly EIA report,” said Jim Ritterbusch of Ritterbusch and Associates. “In any event, we are viewing this advance as likely unsustainable and we have suggested sales of the December futures within the current $3.90-3.95 zone with stop protection above the $4 level close only. We are currently viewing this market as trading near the high side of what we perceive as an approximate 50-cent trading range that could remain intact through much of next month. We still view a much elevated pace of production as a major obstacle to sustainable price advances to above the $4 mark,” he said in a closing note to clients.

In the near term an early season eastern snowstorm is expected to remind traders that winter heating load is just around the corner. Commodity Weather Group (CWG) was predicting a heavy wet snow at Mid-Atlantic points. “A coastal storm this weekend threatens significant snow accumulations for the interior East (west/north of the big cities). Heavy wet snow could snap branches and power lines, destroying some demand,” said Matt Rogers, president of the firm. “On the flip side, very cold temperatures are expected with afternoon levels tomorrow [Saturday] only in the 30s-40s in the Mid-Atlantic to Northeast.”

In its longer-term forecasts, however, CWG is looking for normal to above-normal temperatures across the entire eastern three-quarters of the country. “Our six- to 15-day forecast today is same-to-cooler, with a bit more Midwest to East cooling next week and less East Coast warming in the 11- to 15-day. At the end of the American ensembles’ [weather models’] version, a sign of stronger ridging (possible blocking) around the Davis Strait and Greenland is seen. This may be too fast (Nov. 12), but we will continue to watch for progression, consistency and any consensus,” Rogers said.

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