November natural gas is set to open 3 cents lower Monday morning at $3.59 as market bulls unsuccessfully scan the weather horizon for supportive developments and for the moment shun any hedging activity. Overnight oil markets fell.
Weather forecasts are starting to turn a little cooler, but no sustained cold of any magnitude appears on the horizon. Commodity Weather Group in its six- to 10-day forecast shows a ridge of above-normal temperatures extending from Montana and North Dakota to South Texas with below-normal temperatures confined to a ribbon along the East Coast stretching from New England to North Carolina.
"Over the weekend, the modeling converged better on a stronger cool push into the Midwest and East for the end of this week into the start of the six-10 day outlook," said Matt Rogers, president of the firm.
"The Midwest should see one to two days of much below normal temperatures with two to three days possible for the East Coast, too. But then the model consensus still favors another surge of warm ridging into the middle third of the U.S. by mid to late six-10 day that carries through the majority of the 11-15 day also as it spreads back to the East. The West looks more variable and leans a bit cooler for the 11-15. We continue to track cooling Alaskan heights, which buckles a warmer jet stream flow into the Lower 48 as the calendar moves into the second week of November. The orientation of the troughing is such that we do start to see some cold air supply building in northwestern Canada and Alaska, but no transport vehicle is yet seen."
Risk managers are adjusting their strategies in initiating long positions in the market. Mike DeVooght, president of DEVO Capital, in a weekly report to clients said, "It has been our thought that if the market breaks from current levels, the break should be viewed as a buying opportunity in the January and February contracts. However, because of the lack of strength in the market, we would initiate the buys with a collar (buying calls and selling puts), rather than fixed price. For producers, we will hope for a rally, to reestablish our short hedges that have expired. We will look to do so in the mid $4.00 range."
DeVooght currently advises end-users and trading accounts to hold long January $4.20 calls with a simultaneous sale of January $3.90 puts.
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile said, "As the November '14 natural gas contract expires Wednesday, look for short-covering this week [testing (value areas)]." He cites last week's value area at $3.710-3.636 as a candidate and says "maybe" a test of $3.852-3.730 and $4.178-4.000. "[A] compressed March/April '15 spread (aka widow Maker) is an efficient way to trade the winter seasonal weather," he said in a Monday morning note to clients.
In overnight Globex trading December crude oil fell 70 cents to $80.31/bbl and December RBOB gasoline shed 2 cents to $2.1233/gal.