After opening lower in sympathy with lower cash market prices, natural gas futures rebounded Wednesday in reaction to wide price swings in the nearby crude oil pit. Although they finished well beneath their highs for the session, both natural gas and crude oil futures managed gains on the day. January natural gas finished at $5.278, up 3.8 cents for the session and January crude closed at $30.44, up 34 cents.

Wednesday’s move in natural gas was set off by fund and local buying, which was once again too much for commercial traders, who after having been stopped out of shorts positions, are becoming more and more reluctant to continue to sell the market, traders agreed. “The sellers are thinning out and the buyers are becoming more aggressive,” said Tom Saal of Commercial Brokerage Corp. in Miami. “Volatility is way up. Normally you would have a half-cent between trades, now there is 2 cents in between virtually every trade. It is no wonder we are seeing 30-cent trading ranges on the day.”

And because of those erratic price swings, typical money management strategies honed by energy traders over the years are not as effective, said Saal. “Commercial traders continue to sell this market, but when faced with having to make a margin call after the market moves higher, they are electing to buy back their shorts. That pushes the market even higher. You can’t blame them for wanting to sell this market. Who would not want to sell $5.00 gas.”

But even as volatility is as high as ever, natural gas futures appear to be experiencing a period of sideways consolidation. Since peaking at $5.53 Friday, natural gas has given back 25 cents, leaving traders to ponder whether this is the beginning of a downtrend or just a pause in the uptrend. Saal is undecided. “According to the Market Profile [technical trading system] $5.53, was a top, but Market Profile has been wrong before on this move, and I am not convinced. This period of consolidation could be a halfway pattern, which would mean a move to $6.10 is coming. It is too difficult to tell.”

The fundamental front may be just a murky as the technical outlook. While the El Nino weather pattern is being blamed for the series of storms lashing the West Coast right now, it is yet to have a warming impact on temperatures in the Midwest and East. However, a weather shift may be upon us according to the latest mid-range forecast from the National Weather Service. In its latest six- to 10-day outlook, the NWS calls for above-normal temperatures over a large swath of the Northern Plains, Upper Midwest and New England. Further out on the horizon in its eight- to 14-day outlook, the NWS sees a large area of above-normal temperatures from the Pacific Northwest clear across the country to include the Great Lakes, extended as far South as North Texas.

The weather will take a back seat Thursday when the Energy Information Administration releases its weekly storage inventory data. Last week, the EIA shocked the market with a 162 Bcf storage withdrawal for the week ending Dec. 6. Because they have had their withdrawal estimates exceeded in each of the last three weeks, market-watchers and analysts have ramped up their expectations for this week’s number. After generally calling for a 110-130 figure earlier in the week, market-watchers now look for as much as a 160 Bcf pull, well above the year-ago takeaway of 43 Bcf. That recalculation may have set the market up a price decline if the EIA announces a lower figure.

©Copyright 2002 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.