The expiring November natural gas futures contract is seen opening 2 cents lower Wednesday morning at $3.63 as traders square books and see the market at oversold conditions. Overnight oil markets rose.

Tuesday’s gains don’t seem to have much long-term significance, according to industry analysts. “While the rebound from lower levels may have been supported by a modestly less bearish temperature outlook, the overall swing looks like it was driven by short-covering ahead of the contract expiration or short-term technical support after prices snapped back to the upside after managing only a minor new low,” said Tim Evans of Citi Futures Perspective.

“The market may also be focusing more attention on Thursday’s DOE storage report for the week ended Oct. 24. We’ve only seen a handful of other estimates so far, but it looks as though the early consensus is for a build of 85-86 Bcf, a small step down from the 95 Bcf rate of the prior two weeks. Although the week-to-week decline highlights the emerging seasonal trend toward increased heating demand, refills would still be well above the 58 Bcf five-year average for the date.”

Heating requirements aren’t quite there yet. The National Weather Service for the week ended Nov.1 calculates below-normal heating requirements for key population centers. New England is expected to endure 107 heating-degree-days (HDD), or 26 below normal, and the Mid-Atlantic is set to see 94 HDD, or 24 below normal. The greater Midwest from Ohio to Wisconsin should experience 98 HDD, or 31 fewer than its seasonal accumulation.

“Our own forecast is only slightly less bearish, with a projected 83 Bcf build for last week and above-average injections also expected to continue,” said Evans. “Even with the less-bearish midday weather update, the net change from a day ago still looks bearish.”

By Nov. 14 Evans figures that injections will still be rolling along at a 46 Bcf pace with the year-on-five-year deficit down to 187 Bcf. “In contrast with this bearish storage trend, Tuesday’s upturn in price suggests the market may have become at least temporarily undervalued, with prices trading at a discount to a year ago even with inventories that are still tighter year on year. It will take more of a recovery to establish that a lasting floor is in place, but with heating demand set to rise in the months ahead, we do see it as a possibility.”

Evans recommends holding on to a long December futures position opened Oct. 16 at $3.83 with a protective stop at $3.58. If prices should rally above $3.85, he would raise the protective stop to $3.63.

In overnight Globex trading December crude oil rose $1.15 to $82.57/bbl and December RBOB gasoline gained 4 cents to $2.1950/gal.