March natural gas is set to open 4 cents lower Monday morning at $2.65 as once again, near-term weather outlooks appear to be less supportive and risk managers consider abandoning the long side of the market. Overnight oil markets rose.
Overnight weather forecasts turned slightly warmer near term, and forecasters don't see much chance of major cold until mid-February. Commodity Weather Group in its Monday morning outlook said, "A warmer storm track into the Eastern U.S. right now is contributing to some demand losses compared to last Friday's outlook, but there are other changes later this week and into next week also leading to a few more losses here and there. The overnight guidance edged back a bit warmer than what they offered yesterday for the Midwest to East Coast in both the six-10 and 11-15 day ranges.
"The colder surface temperature anomalies in the Midwest on the various models for the six-10 day are thought to be overdone though due to over-weighting recent snow pack additions. Otherwise, there is also some slight delay on the rebuild of the Alaskan ridging pattern. The Canadian ensemble is the fastest, and hence coldest, model option this morning for the 11-15 day, but the consensus seems to favor a rebuild for the week of Monday, Feb. 16. allowing colder risks to build stronger for especially the second half of the 11-15 day," said Matt Rogers, president of the firm.
Although physically crude oil and natural gas have no economic substitutability, risk managers are keeping an eye on petroleum prices for any signs of support for natural gas. "On Friday, the energy complex spiked higher, driven by product buying. Time will tell whether the complex has 'bottomed out' and if rising distillate prices will help support natural gas prices," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "If a rising complex and colder temperatures do not support the gas market early next week, we could see further weakness over the short term.
"On a trade basis, we will maintain our long positions for another week. If we don't see a rally above the $2.80-2.85 level by the end of next week, we will go to the sidelines."
DeVooght counsels trading accounts and end-users to continue to hold a long March $4.20 call and short March $3.90 put options.
In overnight Globex trading March crude oil added 21 cents to $48.45/bbl and March RBOB gasoline gained 4 cents to $1.5196/gal.