Fueled by continued below-normal temperatures and amidconflicting weather forecasts, natural gas futures galloped higheryesterday as institutional investors covered short positionsestablished over the past two and a half months.

Although they have been conspicuously absent during the pastseveral weeks, these fund groups made a big splash on re-entryThursday as they bid up the February contract 14.2 cents to finishat $2.559. Not only was their presence felt in the price move, butalso in estimated volume, which jumped to 89,861 after rarelytopping 60,000 over the past several weeks.

For many traders, however, the talk was all about the weather inthe eastern U.S. While an Alberta Clipper was laying a quick layerof snow across much of the Mid-Atlantic, confusion over the weatheroutlook next week was setting in. The National Weather Serviceweighed in on the bearish side with its six- to 10-day forecastWednesday (see Daily GPI), calling for above-normal temperatureseast of the Mississippi. However, that flew in stark contrast toreports from several high-profile private forecasting services,which are focused on a continuation of the current cold snap.

Jim Roullier, Chief Meteorologist for Omaha-based StrategicWeather Services, is firmly in that camp and expects thehigh-pressure system in the North Atlantic that has beenresponsible for the below normal temperatures in the Eastern halfof the country to continue through at least Feb. 2. “The strongblocking tendency of the North Atlantic Oscillation sets up afunnel that channels cold air from Canada’s Northwest Territory tothe Northeast U.S. My experience tells me that once that ridge setsup, it going to stick around a while.” If he is right, it will meansuccessive waves of below- and much-below normal temperaturesinterspersed with short periods of normal mercury readings throughthe end of the month.

If February is able to continue higher today, resistance is seenat $2.60 and then $2.69. Support, on the other hand, exists in the$2.465-49 area.

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