January natural gas managed a tempered gain Tuesday on stout volume, but traders were not dissuaded that the current downtrend was over and looked for a test in the low $3s. At the close January had risen 2.5 cents to $3.279 and February had gained 2.7 cents to $3.321. January crude gained a hefty $2.37 to $100.14/bbl.

“The crude market rallies, but we just keep coming off. It seems as though the pattern has been for the market to rally maybe 15 cents, but then it gives back 35,” said a New York floor trader.

Although the market opened on a strong note, “it still feels as though it wants to test down to $3.10 to $3.15. The Northeast has been pretty moderate for the last couple of weeks, and I don’t see anything that’s going to get this market to pick its head up with any authority,” he said. “The market looks rangebound with a top of $3.45 to $3.50 and then you’ll see it pushed down to $3. We might be sitting in this range for the next couple of weeks.

“I think you are seeing a little scale-down buying. The shorts have been in the market and once the market comes off it is not completely falling out of bed. It doesn’t look like anyone is standing up and getting long the market, but it seems like shorts are covering on the way down. It’s been mild here in New York. We haven’t really seen any cold spells. It seems like it’s been above normal for the last month and a half.”

The lack of any sustained cold in the East has translated into some cavernous differentials in heating degree days (HDD) compared to normal. The National Weather Service (NWS) starts the heating season July 1, and since then large sections of the country are well below their seasonal norms. New England since July 1 has accumulated 1,321 HDD, or 376 fewer than normal; and the lower Northeast states of New York, New Jersey and Pennsylvania have seen 1,191 HDD, or 292 fewer than normal. The Midwest from Ohio to Wisconsin has tallied 1,502 HDD, or 166 fewer than normal.

That trend is likely to continue. For the week ended Dec. 17 NWS predicts that New England will see 203 HDD, or 38 fewer than normal, and the lower Northeast will have 191 HDDs, or 32 fewer than normal. The Midwest is expected to endure 211 HDD, or 42 fewer than than normal.

Fewer-than-normal HDDs and near-term weather forecasts are continuing to work against the bulls. Commodity Weather Group in its six- to 10-day forecast predicts a wide swath of above-normal temperatures stretching across the country from Montana and North Dakota south and east to Vermont and Mississippi. Below-normal temperatures are expected from Arizona to West Texas.

“The warming in the one- to five and six- to 10-day [forecasts] is still impressive at times,” said Matt Rogers, president of the firm. “Based on stronger warming this week, we lean toward the warmest model options for next week, too, which are mostly highlighted on the operational European and American models. For the 11-15 day, there are signs of some changes that could bring a bit more colder weather down again. Without major blocking, this would probably be a story like last week with a progressive cold push (rather than a sustained strong cold situation). We favor the more cautious European ensembles. The models still agree on building stronger stratospheric warming from Dec. 18th onward. This could set the stage for new blocking and cold air transport in January,” he said in a morning report to clients.

Continued warmth was on the minds of traders as January posted a new low Monday at $3.217. “This market broke down into new low territory [Monday] under the pressure of a weekend shift in the temperature forecasts suggestive of continued above-normal trends that now extend across almost the eastern two-thirds of the nation into about Christmas,” said Jim Ritterbusch of Ritterbusch and Associates. “Lack of usual snow cover by this date across a large portion of the country could be interpreted as a sign of a warm winter that could keep the current sizable supply surplus expanding for a few more months. Although the large speculative community is not likely pressing the short side of this market assertively at these low levels, the recent chart deterioration is keeping existing shorts comfortable and disinclined to cover positions. As a result, the market is able to drift down to lower levels than previously expected.”

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