Futures Rally On Cold Weather.

By Jeanine Prezioso - Of DOW JONES NEWSWIRES HOUSTON

(Dow Jones)--Natural gas futures reversed losses Tuesday as cold weather and a November contract buying spree drove futures higher ahead of contract expiration at week's end.

Natural gas for November delivery on the New York Mercantile Exchange gained 21 cents or 3.1%, to close Tuesday at $7.091 a million British thermal units.

Winter-month gas contracts gained as well, with December closing 12 cents higher at $7.93/MMBtu and January settling 9.5 cents higher at $8.32/MMBtu.

Traders anticipated volatility this week with the November contract expiring Friday. Futures settled lower across the board Monday, with the November contract losing 5% of its value. Earlier Tuesday traders said the November contract was trying to creep back towards highs of $7.40/MMBtu it reached Monday in intraday trading.

Colder weather forecasted for the U.S. Midwest and Northeast this week was seen driving the rally.

Previous forecasts had predicted weather would moderate next week. But current national weather forecasts are calling for below-normal temperatures in the Midwest and Northeast continuing through next week, according to the National Oceanic and Atmospheric Administration.

Cold weather pushed physical gas prices higher Tuesday, which in turn, fueled higher Nymex gas prices, traders and analysts said. Gas traded at the benchmark Henry Hub Tuesday at an average of $7.13/MMBtu, about 16 cents lower than Monday, but higher than the front-month futures price.

"November correlates with cash prices," said Guy Gleichmann, president of United Strategic Investors in Hollywood, Fla. "November is not overpriced. Cash prices are elevated at this time because of the unusually low temperatures. I don't think the market is overvalued."

Some analysts still stick to the argument that with winter heating fuels, including natural gas, at record high levels, the commodity is overpriced. Natural gas in storage is at 3.442 trillion cubic feet, well on its way to record highs of 3.5 tcf by Nov. 1, the end of injection season, according to the U.S. Energy Information Administration.

U.S. heating oil inventories are also at historic highs after a mild Atlantic hurricane season this past summer and fall, and a warm winter last year.

But, if November is colder, "you won't get a pull back in here." Gleichmann added.

Traders anticipated volatility this week with the November contract expiring Friday. Futures settled lower across the board Monday, with the November contract losing 5% of its value. Earlier Tuesday traders said the November contract was trying to creep back towards its highs of $7.40/MMBtu that it reached Monday in intraday trading.

One trader found the extent of the run-up in the November contract price Tuesday linked to one or more market participants inexplicably bidding higher for it.

"I've seen consistent larger-than-normal size bids all day," the trader said. "But I can't understand why anyone would want to own November with the warm start to the month."

FUTURES	SETTLEMENT	NET CHANGE
Nymex Nov	$7.091	+21.0
Nymex Dec	$7.936	+12.0
Nymex Jan	$8.326	+ 9.5
CASH HUB	RANGE	PREVIOUS DAY
Henry Hub	$7.00-$7.18	$7.05-$7.42
Transco 65	$7.28-$7.50	$7.50-$7.66
Tex East M3	$7.85-$7.99	$7.80-$8.15
Transco Z6	$7.88-$8.10	$7.96-$8.16
SoCal	$6.80-$6.91	$6.84-$7.05
El Paso Perm	$6.47-$6.72	$6.60-$6.81
El Paso SJ	$6.50-$6.62	$6.52-$6.70
Waha	$6.55-$6.75	$5.82-$5.95
Katy	$6.74-$7.05	$6.92-$7.22

Source:
-By Jeanine Prezioso, Dow Jones Newswires; 713-547-9209; jeanine.prezioso@dowjones.com

(END) Dow Jones Newswires

October 24, 2006 16:29 ET (20:29 GMT)

FUTURES AND OPTIONS TRADING INVOLVE RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE.

October 24, 2006

United Strategic Investors Group

Guy Gleichmann, President

1926 Hollywood Blvd Suite 311
Hollywood, Florida 33020

(800) 974 – 8744