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The Heat Just Keeps Coming; January Called 9 Cents Lower

January natural gas is expected to open 9 cents lower Wednesday morning at $3.78 as the medium-term weather outlook continues to become ever more moderate. Overnight oil markets were mixed.

Longer-term weather forecasts continue to get warmer. MDA Weather Services in its morning 11-15 day forecast said, "The already warm forecast from [Tuesday] has trended significantly warmer today. With troughing expected to dominate the northern Pacific, a broad upper-level ridge is expected across the central U.S., leading to above-normal temperatures across most of the country. The strongest warmth will be focused across north-central areas, with much-aboves now expected for the period as a whole in the Midwest.

"Given the strong Pacific flow across the U.S., significant cold threats are very limited. Strong model agreement leads to increased confidence in the very warm forecast."

WeatherBELL Analytics in its morning 20-day Energy Outlook forecasts for the next two weeks an accumulation nationally of 334.9 heating degree days (HDD), well above last year's 270.2 HDD but fewer than the 30-year average of 352.6 HDD.

Analysts saw Tuesday's weakness as a continuation of moderating forecasts and revisions to the storage surplus. "The natural gas market extended its recent decline on Tuesday as the temperature outlook continued to trend warmer, with below-average heating demand and below-average storage withdrawals likely through the first half of December," said Tim Evans in closing comments Tuesday to clients.

If market bulls were looking for Thursday's storage report to stop the hemorrhaging, that is unlikely, according to Evans. "Thursday's DOE storage report for the week ended Nov. 28 seems unlikely to change the price dynamic, with the early consensus pointing to 49-50 Bcf in net withdrawals, very similar to the 50 Bcf average for the date. Our own model produced a comparable 47 Bcf result. While neutral compared with the five-year average, the larger context suggests last week was just a transitional period between the average drop in storage in the prior period and the bearish storage comparisons likely in the weeks ahead."

Evans calculates that by Dec. 19, the year-on-five-year average storage deficit will be 264 Bcf. "This declining surplus -- a function of both limited demand and robust supply growth -- confirms the market is becoming better supplied on a seasonally adjusted basis. At the same time, we also note that winter isn't over, and at some point a cycle of colder temperatures will likely send prices climbing again, creating at least an echo of November's bullish price action."

In overnight Globex trading January crude oil added 36 cents to $67.24/bbl and January RBOB gasoline dropped a penny to $1.8042/gal.

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