January natural gas rose Tuesday as traders saw it as largely a defensive move by those seeking some price protection should cold weather eventually materialize. At settlement January had risen 10.8 cents to $3.633 and February had gained 9.8 cents to $3.653. January crude oil finished just under the century mark, adding $1.58 to $99.79/bbl.

“Overall, I think we are still playing a range. Late in the day Monday we started to see some buying coming into the market, and [Tuesday’s] move is just a continuation of that,” said a New York floor trader. “Traders are thinking that at some point it will get cold, and this is just initial buying. It’s a wait-and-see thing, and by the middle of the month if you don’t see [cold] weather on the horizon, the market will give its gains back

“There’s plenty of gas, and I don’t see why the market should do anything.”

The trader said he thought the trading range was bounded on the upside at $3.73, $3.76 and $3.78 with higher boundaries at $3.91-3.94 and $3.98. At the lower end of the range he saw prices gravitating to the $3.42-3.44 and $3.50-3.53 areas. “Tuesday’s gain is just a knee-jerk reaction to January being the spot contract,” the trader said.

“Fundamentally, if something comes into the market to support it, prices will stay higher. If the cold weather doesn’t show up, I think the market will drift lower. I don’t think it will be a sharp drop.”

That weather may be something of a long shot if longer-term forecasts are correct. MDA Information Systems Inc. in its 11- to 15-day outlook predicts normal temperatures throughout most of the U.S. with below-normal temperatures limited to Arizona and Southern California and above-normal readings from North Carolina to Arkansas and East Texas.

“While the GFS [Global Forecast System] and Euro models remain pretty far apart in this period, confidence has grown a bit due to some consistency in the Euro model, which is favored. Additionally, there remains good support for a return of warmth from a handful of signals [+AO (Arctic Oscillation)/NAO (North Atlantic Oscillation)], -PNA [Pacific North American pattern], MJO [Madden-Julian Oscillation] Phase 4. Risks are mainly with timing for the return of this southeast ridge. A slower return of this ridge, as well as some lingering high pressure early, could keep the South a bit cooler before they warm late. On the flip side, stronger warmth is possible but a lesser risk. The northern tier should remain cool, as should the western U.S.”

Tuesday’s gains were consistent with market technicians versed in Elliott Wave and retracement analysis who see the market as having put in a bottom when December traded down to $3.285. “It is now looking like $3.285 is as close as natgas is going to the key $3.210-3.195 support, for now,” said Walter Zimmermann, vice president of United-ICAP. “The decline from $3.978 to $3.285 looks like a completed five-wave pattern. And the sentiment did fall to only 16% bulls back on 18th November.”

Just how far can the market go? Zimmermann sees an “ABC correction higher of the $4.983 to 3.285-A-wave decline. Peg $3.935 a minimum target and $4.335 ideal resistance as the 0.382 and 0.618 retracements, respectively.”

More fundamentals-focused analysts also see a move toward $4. “Natural gas futures fell back from higher overnight levels under a wave of long liquidation from the expiring December contract amid updated temperature forecasts featuring some colder-than-normal temperatures through mid December, but not necessarily cold enough to produce bullish storage comparisons,” said Tim Evans, analyst with Citi Futures Perspective in New York. “The market continues to reflect a tension between rising seasonal heating demand on the one hand and a rising seasonally adjusted storage surplus on the other.

“Overall, we continue to be on the lookout for a seasonal price recovery to $4.00-4.25 as we doubt consumers will be getting the current bargain straight through the heating season with the storage surplus limiting gains that might otherwise reach the same $4.50-5.00 range reached last winter.”

Evans said a recommended standing buy-stop order in the January contract at $3.66 was hit on Friday. He suggests a $3.39 sell-stop to limit losses.

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