January natural gas is set to open a penny higher Monday morning at $3.02 as prices manage to hold $3 technical support and weather forecasts calling for cold remain mostly unchanged.
Weather forecasts overnight changed little. WSI Corp. in its morning report said, "The 11-15 day period forecast is not as cold or warmer than previous forecasts, except across the Northeast. This is due to model trends and the period shift. Forecast confidence is about average today. Despite the model differences during the six-10 day period, medium-range models are in reasonably good agreement with the evolution of the large-scale pattern across the Pacific and North America during the 11-15 day time frame.
"The possible transition of the pattern toward a negative PNA [Pacific North American pattern] and a positive NAO [North Atlantic Oscillation] supports an upside risk across the southern and eastern U.S. The West Coast has a risk to the cooler side."
Cooler temperatures are in the forecast for next week, but the market impact is far from determined. Bone-chilling cold capable of significant heat use seems to be off the table. WSI forecasts that next week's Sunday high in Boston of 41 will fall to 27 by Tuesday and inch up to 28 on Thursday. The normal high in Boston is 36. New York City's Sunday high of 42 is forecast to drop to 31 Tuesday and ease to 29 Thursday. The seasonal high in New York City is 40. Chicago's 35 high on Sunday is seen sliding to 25 Tuesday and falling further to 22 Thursday. The normal high in the Windy City is 31.
Risk managers see nominal upside risk. "As we look forward, it continues to be difficult to build a bullish case for natural gas on a fundamental basis. But with the record short positions that the funds are holding, a cold snap could spark a healthy short-covering rally," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "As we approach year-end, the pressure is on the longs to liquidate their positions, but as we look forward to the New Year, the shorts will have to re-evaluate the risk/reward of being short natural gas under $3.00. On a trade basis, we will continue to hold current positions and re-evaluate after the beginning of the New Year."
DeVooght advises trading accounts to roll long January $4.20 calls and short January $3.90 put options to February. Current long February $4.20 calls and short February $3.90 puts should be held. End-users are advised to do the same. No strategy has yet been devised for producers and physical market longs.
In overnight Globex trading, February crude oil gained 57 cents to $55.78/bbl and February RBOB gasoline added a penny to $1.5363/gal.