December natural gas futures staged a stout advance as near-term weather expectations provided a healthy incentive for buyers. The National Weather Service in its six- to 10-day forecast showed a broad stretch of the country from Louisiana to Vermont and as far west as Kentucky as having to endure below-normal temperatures. From Chicago to Dallas all the way to the West Coast was forecast to be above normal. December futures rose 22.1 cents to $6.533, and January rose 17.3 cents to $6.641. December crude oil slipped $2.09 to $54.95.

As hefty as the rise was it wasn’t enough to entice hedge selling. “We wish we had sold when it [December futures] was above $7 the other day,” said a Denver trader. He said he had accounts that “were working orders in the $7.50 to $7.60 level, but we didn’t any sell orders filled.”

The trader noted that his company also had some put positions established at much higher prices, but “we are just holding on to those, for we think it could get a little weaker here in the short term. What we really want to do is try to sell more balance of this winter, summer of next year, and then winter of next year. We just haven’t quite gotten to those levels.”

The trader noted that much of the gas that was coming on stream was higher cost, and his company’s producer clients were more inclined to do fixed-price deals rather than use options. “Out-of-the-money put options are getting pretty pricey, and if you take your net floor after paying premium of 60 cents for a $5.50 floor it nets you $4.90 and their expenses are already above that. It’s one thing to do these trades at $10 to $12, but much different at these lower levels.”

Economic bulls received some favorable news in the form of production data. The 9:15 EST release of the index of industrial production showed an increase of 1.3%, well above expectations of 0.2%. Capacity utilization data came in right at earlier estimates of 76.4%. Stock traders, however, weren’t terribly impressed. The Dow Jones Industrial Average lost 223 points to 8,273 as Citigroup announced plans to cut 52,000 jobs.

Mike DeVooght of DEVO Capital Management recommends holding current positions. Natural gas trading accounts as well as end-users are advised to stand aside and producers should hold on to a winter 2008 $10 put strip established earlier at 65 cents.

Weather forecasts for the near term continue to favor the bulls. MDA EarthSat in its morning six- to 10-day forecast said the projections for continuing cold for the East held through the weekend computer runs. “The frigid conditions across the East early on here do moderate briefly on days seven and eight, but there is broad support in the models for another high-pressure system dropping into the Midwest at mid-period and pushing toward the East and Southeast, reinforcing the chilly pattern,” said Matt Rogers, director at MDA EarthSat.

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