February natural gas is set to open 3 cents higher Wednesday morning at $2.97 as forecasts call for continued cold with risks that the cold might continue over major population centers. Overnight oil markets rose.
Overnight weather forecasts called for continued cold over a broad expanse of the East and Midwest. MDA Weather Services in its morning six- to 10-day outlook shows an extensive fairway of below-normal temperatures from New England to Alabama and Minnesota to eastern New Mexico.
"A similar outlook is in place [Wednesday] compared to yesterday with 'aboves' still in the West while the eastern two-thirds of the nation remains colder than normal. Though colder changes were made in parts of the central and eastern U.S. again today, this cold remains substantially less intense than that seen in the one- to five-day period.
"A breakdown in the upstream Pacific pattern is expected with troughing set to replace ridging near the West Coast. An increase in Pacific flow yields a warm-up along the northern tier of the U.S. as the period progresses."
MDA added that risks to the forecast include the fact that high pressure keeps lingering cold risks over the interior East to the Great Lakes and the Ohio Valley. Also, the northern tier of the U.S. could see a more expansive warm-up.
Once the cold dissipates, analysts see a warming trend. Teri Viswanath, director of natural gas trading strategy at BNP Paribas, said in a report Tuesday to clients, "there appears to be better model agreement now that the near-term cold will end, with temperatures moderating and returning to above-normal levels in the central U.S. by late next week. However, there are early signs that this warm-up may be short lived, as many models already showing some ridging trying to return to Alaska before month-end.
"The combination of extraordinarily light destocking in December and the warm-up mid-January has reset the trading range for natural gas prices, with a $3.25 ceiling now developing. Yet, with more than half of the heating season ahead, the questions remain on how much further prices might fall in light of current fundamentals. In our opinion, end-of-winter inventories will need to approach 2 Tcf in order for prices to significantly deteriorate from current levels. Based on our estimates of supply and demand, we expect that working gas in storage will end the season at 1.76 Tcf, which suggests some level of support at current prices."
In overnight Globex trading February crude oil gained 74 cents to $48.67/bbl and February RBOB gasoline rose fractionally to $1.3623/gal.