February natural gas futures made double-digit gains Friday as traders see a fundamental shift in the supply-demand balance in the long term and factor in another spate of bone-chilling cold. At the close February futures rose 20.4 cents to $5.819 and March added 18.2 cents to $5.750. March crude oil continued its slide lower, dropping $1.54 to $74.54/bbl.

Short-term traders see a positive tone to the market. “This close is particularly good with the market closing above $5.80,” said a New York floor trader. “We have to get well above $6.035 on the upside for me to consider it a breakout because we have been in this very defined range between $5.38 and $6.035 for a while. Until that breakout occurs, I’m not going to believe the market is in another leg up.”

That leg up may just be in the cards if another weather-driven advance unfolds. Weekend conditions may be setting the stage for a stout gain on Monday as forecasters are calling for another bout of winter storminess to grind through the Midwest. “The western storm will sweep eastward from the central Plains to the Great Lakes and Ohio Valley this weekend,” said Mark Ressler, a meteorologist with The Weather Channel. He added that a “wintry mix and freezing rain in the Upper Midwest and light snow in the Dakotas Saturday will change to near-blizzard conditions in North Dakota by Sunday.

“Meanwhile, wind-driven rain and some thunderstorms will race eastward from the eastern counties of Nebraska and Kansas, across the mid-Mississippi Valley into Michigan and the Ohio Valley.” According to the forecaster, high temperatures will range from the 20s and lower 30s in the Dakotas to the 50s in the Ohio Valley. Snow showers will cover across much of the Midwest Monday, and lake-effect snow squalls and snow showers will linger over Michigan and the eastern Ohio Valley on Tuesday.

Analysts are looking for change in the natural gas market now that two weeks of withdrawals greater than 240 Bcf have whittled the inventory surplus down to zero. “In two swift strokes, the surpluses against a year ago and against the five-year average have disappeared. There is no surplus factor now,” said Peter Beutel of Cameron Hanover. Beutel cited the swift change of conditions as “amazing” and said that “for the better part of the last year and a half, traders have been trying to discount these two surpluses. When we started this winter, many did not feel that the surpluses would be addressed even by spring. Here it is, not yet even three weeks into the new year and the surpluses are gone. Right away this takes away the biggest reason anyone has had to sell prices lower. At this point we are in line with previous years; any move in prices now should be based on existing or expected supply and demand.”

According to Beutel, these recent developments have left prices undervalued. “Any forecasts calling for colder temperatures should give us cleaner advances, without any braking need to pull back on the reins because of storage surpluses. In some respects, this market should now be better able to reflect temperature forecasts and supply or demand revisions. It is almost the dawning of a new day in this natural gas market.”

©Copyright 2010Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.