February natural gas is expected to open 9 cents lower Monday morning at $2.86 as forecasters call for a broad and pronounced warm-up in the near term and analysts anticipate thinner storage withdrawals going forward. Overnight oil markets fell hard.
Overnight weather forecasts show a broad expanse of above-normal temperatures near term. Commodity Weather Group in its Monday morning six to 10-day outlook shows above-normal temperatures from California to Maine and Texas to Canada. "Over the weekend, the modeling maintained very good consistency on a significant January thaw over the entire U.S. kicking off this weekend and dominating next week," said Matt Rogers, president of the firm.
"Some minor differences in details are noted, but the big picture of a widespread warm period carries improved confidence. The warmest anomalies are expected over the Midwest and Plains, but the East, South and West should also see significant below-normal demand. Unlike the warmth in December, though, this one is expected to be much shorter-lived. Most modeling offers consensus and consistency on returning Alaskan ridging by early in the 11-15 day with cold air transport first delivering impacts to the West first with a shift to the Midcontinent by mid to late period. The biggest debate seems to be timing as models vary on speed of cold air shifting east, but another issue could be typical 11-15 day underestimation of cold air outbreak intensities."
Tim Evans of Citi Futures Perspective calls the prospects for natural gas "mixed." In closing comments Friday Evans said, "colder temperatures [last] week and [this] expected to translate into some larger seasonal storage withdrawals, but only at near-average rates. The cold has not exactly been routine, but it does seem that way because the growth in supply offsets at least some of the increase in heating demand.
"It takes an even greater temperature variance to yield an above-average storage withdrawal. In the current cycle, we also note that the warmer than normal readings in the 11-15-day period will mean a quick transition to below-average heating demand and a return to below-average storage withdrawals."
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile expects the market to test last week's value area at $2.970 to $2.860 before moving on and "eventually" testing $3.800 to $3.648. Saal has identified a third weekly value area at $4.345 to $4.125 and said, "Weekly value areas show a retracement rally should come eventually."
In overnight Globex trading February crude oil fell $1.64 to $46.72/bbl and February RBOB gasoline shed 3 cents to $1.2965/gal.