Weather Still Biggest Factor for Prices This Winter

Weather forecasts again remained the focal point of the natural gas front month fundamentals as cooler-than-normal temperatures are being forecast for the next few weeks. The more supportive weather trend will fight a significantly bearish pull downward as the broader energy complex continues to crumble with gasoline and heating oil leading the sell-off.

Still weather remains the last hope for futures traders looking to go long on the winter season. If the cold weather relaxes in the consuming regions of the Midwest and Northeast come February, the front month natural gas contract could test $6.00 after all. However, if the more liberal forecasters are correct, look for the bulls to come in on snowplows.

"It'll be weather from here on out now," said Ed Kennedy of Commercial Brokerage. "Storage is a given. The independent [forecasters] are looking at a cold front -- not the one coming in now but the one coming next week -- that they think will bring temperatures down 25-30 degrees below normal for the whole lower 48. You get that kind of weather in and the market will pay attention."

"There's plenty of gas in storage now, but you watch the market suck the gas right out there," he added.

With weather remaining the primary factor keeping the front month contract up, if some weather predictions are correct it may not be time to put away the shovels and skis quite yet.

One trader said, "The National Weather is becoming a joke in the industry. They predicted temperatures in the 50s for New York today and it's more like the 30s. That's not a just miss, that's a mile."

"Those who think that winter 2006-2007 is going to remain mild are in for a shock," said AccuWeather.com Chief Long-Range Forecaster Joe Bastardi. "Winter is likely to come with a vengeance. A week from now, we'll start seeing truly cold air across much of the country, and we expect this change to last."

Bastardi also said that the weather could "turn on a dime," and that there is potential for "one of the top-five coldest 30-day stretches in the past half century."

Regarding tomorrow's EIA natural gas storage report, withdrawal estimates remain between 42 Bcf and 53 Bcf on average with more weight to the lower numbers.

Looking at the charts, technical support for the February contract is seen at $6.58, $6.00, $5.75, $5.58, $5.35, $5.20, $5.00, $4.50 and $4.07. Meanwhile, resistance is pegged at $6.80, $6.87, $6.92, $7.00, $7.20 and $7.40.

In its most recent 6- to 10-day forecast, the National Weather Service calls for below-normal temperatures for much of the West and mostly normal temperatures for the Midwest and South with only a small bubble of above-average temps for the Northeast, including the New York metro area up to Maine.

Looking further ahead, the 8- to 14-day forecast calls for cooler than normal temperatures for most of the nation, with a wide swath of cold air from Washington to much of the South with normal temperatures taking over the Northeast and most of California, likely increasing the demand level in those population centers.