December natural gas is expected to open 11 cents higher Wednesday morning at $4.24 as traders see no end to cold weather patterns in sight, and technical analysis points higher. Overnight oil markets were mixed.
"Weather sentiment will remain bullish over the next week as a series of progressively colder weather systems sweep through the northern U.S.," said Natgasweather.com in its Wednesday morning report.
"The ones arriving Thursday and late Saturday are not exceptionally cold and fairly typical of November, but the one for next week will bring well below freezing Arctic air over the northern U.S. The anticipation of it will likely to keep the markets on edge for days to come. The result of these coming weather systems will likely result in the first draw of the season after the next two weeks bring the final builds," the forecaster said.
"As long as weather patterns remain chilly over the northeastern U.S. into the third week of November, bullish weather sentiment should persist with the potential for higher prices. There will be breaks after next week where temperatures warm to near normal, allowing the cold pool over northern Canada to reorganize. Although, there is nothing in the weather or climate data to suggest the active and chilly pattern will end anytime soon."
Technical analysts also see a strong case for advancing natural gas prices. "If we were in a continuing downtrend we would not have taken out the upper bound of a downtrending wedge and we would not have been able to get above the 0.7862 retracement of this last leg down at $4.04," said Brian LaRose, a technical analyst at United ICAP, in a post-close webcast to clients Tuesday.
"What this tells us is that there is a significant low in place at $3.54, and the question is how far do we go from here?" LaRose looks to wave count models and one scenario is that the market will make a "B" wave higher, which will have a minimum implied target of $6.37 and a more likely objective "closer to $8.13, and possibly even a $10 handle from here."
LaRose also said there were fundamental factors pointing to higher prices. "If we get another polar vortex, we could easily draw down supplies just as quickly as we did last year. We could certainly see bottlenecks which would cause price spikes. Those bottlenecks have not been fixed. People will be a little bit more prepared this year, but the overall fundamental risk is to the upside.
"An average seasonal cycle advance of 107% would take us up to the $7.33 area. Can we get there? Either way whether we are talking a monster rally or even a short term rally, the trend very likely is higher from here."
In overnight Globex trading December crude oil rose 35 cents to $77.54/bbl and December RBOB gasoline eased fractionally to $2.0756/gal.