After spending less than 5 minutes below $4.00 last Friday, natural gas futures rebounded convincingly yesterday as traders were once again hit with another bullish weather forecast to start the week. The resultant buying pressed prices higher throughout the trading session. A round of locally-led short-covering put a bow on it for bulls, as the November contract rallied at the close to settle at $4.176 on its penultimate trading day, up 14.8 cents from Friday and just a few ticks off its $4.19 high Monday. Considering it was the day before expiration, trading was light as just 84,638 contracts changed hands.

Several sources pointed to short-covering Monday as the impetus for the price rise. After watching the market fail at some key technical levels late last week, sellers had converged on the natural gas market Thursday and Friday. At $4.028, last Friday’s settle was the lowest weekly close by the November contract in three weeks. That, coupled with a bearish storage report last Thursday, and a market that was still viewed as being overbought, provided a recipe for an assault on the $3.80 level, market-watchers suggested.

What those bears failed to realize, however, is the danger of shorting the market over a weekend during the heating season. “There were signs of moderation in the forecasts last week. When that was not corroborated by revised forecasts [Monday] morning, it immediately proved all those that sold last week wrong,” a Houston-based risk manager said.

According to the latest six- to 10-day forecast released Monday by the National Weather Service, below-normal temperatures are now expected for areas of the country east of the Rocky Mountains through at least Nov. 7. Further out on the horizon, the NWS eight- to 14-day outlook predicts below-normal mercury readings for the eastern half of the country through at least Nov. 11.

And while the latest weather forecasts remain bulls’ ace in the hole, storage is a wildcard. Citing heating degree days last week that did not quite stack up against predictions, Thomas Driscoll of Lehman Brothers in New York has raised his storage injection estimate from 10 Bcf to 15 Bcf. Last year the market injected 32 Bcf, the Energy Information Administration estimates.

According to the NWS, there were an average of 105 heating degree days last week versus 57 last year and 83 normally. A heating degree day is a population-weighted measure of how much the mean daily temperature dipped below the 65 degrees F base. Or in terms we can relate to: on a population-weighed basis, the average temperature last week across the country was 50 degrees F. (65 degrees F. minus the daily average differential of 15 degrees (105/7), versus a 57 degree F. average temp last year and a 53 degree F. temp normally.

Citing predictions this week for 136 degree days heating, Driscoll calls for a relatively-large 35 Bcf withdrawal this week (to be announced the following Thursday). Last year the market injected 20 Bcf for this same period. If these two storage predictions hold true, they would completely erase the year-on-year surplus which currently stands at 61 Bcf.

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