February natural gas is set to open unchanged Friday morning at $2.93 as traders grapple with a fluctuating weather outlook within what analysts describe as an overall bearish trading framework. Overnight petroleum markets eased.
Weather forecasts looking out to the 11- to 15-day period see a cold, warm, cold scenario developing. Commodity Weather Group in its Friday morning report said the overnight model runs "added some demand compared to yesterday's outlook especially for early to middle next week across the Midwest and East during the colder side of the pattern before the bigger warmer shift commences. The models continue to struggle during this transition period as big chunks of remnant cold interact with increased jet stream energy, offering some winter storm risks next week.
"Despite the net colder changes, the bigger 11-15 day warm-up is still progressing forward with day 10 now featuring widespread above to much above normal temperatures from the Midwest to Tennessee Valley all the way into the West," said Matt Rogers, president of the firm. "That warming still dominates the East in the 11-15 day with good model agreement and warmer risks, but the models still rebuild eastern Pacific to Gulf of Alaska ridging that sets the stage for colder changes later in the 11-15 day, which like last time, should go more into the West before coming east."
Top traders are in a "sell the rally" mode. "[Thursday's] trade provided some mixed signals, but we saw nothing that would alter our bearish bias. While the approximate 6-7 cent price advance off of the EIA release appeared appropriate, the lack of counter-intuitive response to the number suggests a market that will likely test the $3 mark one time during the next couple of sessions," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday.
"The 131 Bcf withdrawal was roughly 10 Bcf larger than the average street expectation. Nonetheless, the supply deficit against five-year average levels has now shrunk to a mere 2%, or just 67 Bcf. While next week's release will disrupt this dynamic of deficit contraction, we feel that a surplus against normal levels will be established early next month. Meanwhile, year-over-year comparisons are looking more bearish as a 250 Bcf overhang against last year will be providing a significant cushion to this week's extreme cold. While temps are expected to remain below normal next week, deviations from usual are expected to be small.
"Furthermore, some outlooks are beginning to take on a neutral/slightly bearish appearance across the second half of this month. So while short-term temperature views will continue to rule over the near term, we also believe that a near-record production pace will be reducing the impact of the weather factor once the winter approaches its mid-point. We still see price advances much above the $3 mark as unsustainable. We are allowing for a brief price spike to as high as $3.10-3.15 if upcoming weekend temperature views lean back toward the cold side. However, such a rally should be viewed as a new selling opportunity."
In overnight Globex trading February crude oil fell 14 cents to $48.65/bbl and February RBOB gasoline eased a half cent to $1.3361/gal.