Despite forecasts for moderating temperatures by midweek, natural gas futures traders picked up Monday where they left off last week as they lifted the market back above the $4.90 level.

Technical factors were also evident Monday when an early push lower failed to attract much follow-through selling. Bulls used the setback as a bargain buying opportunity however, and those losses were quickly negated.

The November contract closed at $4.904, up 13.7 cents on the day and a whopping 21.4 cents above its early session low. In bears favor was the fact that at just 47,523, estimated volume was weak for the session.

After a taste of winter weather last week the eastern half of the nation is warming back up this week with above-normal temperatures in New England expected by this weekend. However, market watchers were quick to note that last week’s chill could equate to a small and therefore potentially bullish injection this Thursday when the government releases its latest storage estimate. Early expectations call for a 60-70 Bcf build, which would fall short of the recent string of 100 Bcf refills.

However, a 60-70 Bcf injection would still top the 57 Bcf five-year average, prompting another decline in the five-year average deficit, which last week had been whittled down to just 55 Bcf. “Moreover, the milder temperatures for this week and next should prevent this from becoming ongoing for the market,” said Tim Evans of IFR Pegasus in New York. “The question is, how much pressure can be put on the fund shorts to cover exposures in the meantime?” he asked.

A real test of their tolerance to higher prices would come on a settlement by the November contract above its 40-day moving average, which on Monday was calculated to be $5.017. A break of that level of resistance, which is neatly clustered with the psychological barrier at $5.00, could be the turning point for the bulls, who would quickly claim the move as a signal of the impending uptrend.

On the downside, Evans sees a break below $4.625 as a sign the $4.565 low from last Thursday would be tested. On paper, he is long from $4.78 with a sell-stop positioned at $4.61 to limit his risk.

©Copyright 2003 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.