January natural gas is expected to open 5 cents lower Friday morning at $1.96 as the persistent drumbeat of mild temperature forecasts continues to overwhelm fundamental market shifts. Overnight oil markets fell.
Analysts point out that even significant fundamental changes in the demand landscape, such as coal-to-gas switching and inordinate drawdowns from storage, can't offset an ongoing weather regime of mild temperatures. "Mild temperature conditions that are still seeing no indication of significant change continue to weigh on this market, with bearish spillover from exceptionally weak heating oil futures adding to downside momentum," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients.
"Nearby futures have dropped to below our expected support at $2.05 even as yesterday's EIA storage report provided a sizable bullish miss of some 13 Bcf. The counter-intuitive response to the EIA data is underscoring an extremely heavy pricing environment that is forcing observers to look ahead to some smaller than normal supply draws as this month proceeds that should easily offset yesterday's contraction in the supply surplus. And with abnormally mild November and December weather conditions well entrenched, visions of an El Nino influenced mild winter are very easy to imagine. This is forcing the market to look even further down the road to next year when storage overcrowding could become a significant bearish item."
Gas buyers for power generation across the MISO footprint may have to be on their toes Friday and over the weekend as wind generation over the power pool looks to be highly variable. In its Friday morning report WSI Corp said, "Much above average temperatures are expected during the period. [Friday] will feature variably cloudy skies and high temps in the upper 30s, 40s and 50s north; 60s and 70s south. Conditions will change during the weekend into the start of next week as a robust storm system will develop over the central U.S. This storm may trigger heavy rain and strong thunderstorms across the Mississippi and Ohio Valley, while there may be a narrow swath of wet snow across the Upper Midwest. [Six- to 10-day] GWHDDs dropped 7.7 and are forecast to be 127.1 for the CONUS.
"Wind generation will sharply subside and become relatively light today into Saturday. The weekend storm will likely cause wind gen to ramp back up during Sunday into early Monday. The secondary system may provide another boost of wind gen during Tuesday. During these two spikes, output is forecast to peak 8-10 GW."
In overnight Globex trading January crude oil fell 36 cents to $36.40/bbl and January RBOB gasoline fell fractionally to $1.2786/gal.