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Forecasts Turn Slightly Cooler; February Seen 8 Cents Higher

February natural gas is expected to open 8 cents higher Tuesday morning at $2.87 as near-term weather forecasts turn slightly cooler and timing issues continue. Overnight oil markets continued their steep descent.

In its morning six-10 day outlook, WSI Corp. said it expects less warmth. "This is due to the day shift across the Westand also a function of model trends over the East. Forecast confidence is average at best as medium-range models display numerous technical differences with the timing and track of storm systems across the nation.

"There are risks in either direction given the model spread and storm track. The Northeast and the West have a slight risk to the colder side, while the Northern Plains, Midwest and the South may run warmer."

In the near term, power generators across the broad PJM footprint are not likely to see much in the way of wind generation. "Cold high pressure will engulf a good portion of the power pool during the next couple of days. However, a northeast flow and broad area of low pressure off the Southeast coast will lead to a period of light snow and wintry mix across the lower Mid Atlantic tonight into Wednesday. Minor snow and ice amounts are expected.

"High pressure may support fair weather and a moderating trend during the end of the week into the start of the weekend. Light and variable wind generation is expected during the next couple of days. A westerly breeze should provide a boost to wind generation during Thursday and another spike of generation is possible during Friday night into the weekend," WSI said.

Analysts are looking for prices to drop another 20 cents. "[A] consensus appears to favor above-normal [temperature] trends beginning in a few days and extending at least through next week. Some 30-day views are advising normalization," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday. "As a result, a supply surplus against average levels will likely be established next month following a brief expansion of around 30-35 Bcf within Thursday's release. Looking out later this month and into February, we still see production as an increasingly bearish item that has not been fully discounted, in our opinion.

"Despite a sharp cut in the rig counts, we don't expect these reductions to have much impact on production for several months. Once the ongoing cold spell passes in a few days, we see increasing pressure on physical trade that will be acting as a drag on front-month futures relative to deferred contracts. We see a contango established along virtually all parts of the curve, a development that should continue to encourage investment-type entry in to the short side while at the same time providing incentive for additional short hedges. All factors considered, we are maintaining a bearish stance as we view our $2.60 target as high probability of some 85-90% within about a one week- 10-day time frame."

In overnight Globex trading February crude oil continued to fall losing $1.37 to $44.70/bbl and February RBOB gasoline dropped 4 cents to $1.2394/gal.

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