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New Weather Data? New Moderation; January Called Down 4 Cents

January natural gas is expected to open 4 cents lower Tuesday morning at $1.85 as forecasters scouring recent weather data discover another episode of moderating temperatures. Overnight oil markets were mixed.

Forecasters studying recent model runs have discovered yet another decrease in heating demand, although not as severe as Monday's. Commodity Weather Group in its Tuesday morning report said, "After yesterday's bigger changes, we still find enough warmer adjustments for another demand loss that is much less than what happened 24 hours ago. We see some minor cooler changes for the Midwest and East for the next few days, and the Midwest is also slightly cooler this weekend, but otherwise, bigger warmer changes are noted in the East for later next week right on into the 11-15 day range.

"The Southwest is also slightly cooler at times. [We] continue to find very good model agreement on the prevailing pattern type. The only conflict we see in the ensemble clusters at the end of the period is that some of them are stronger with additional cold air transport to the West with maybe some bleeding into Texas and the Plains. Otherwise, well below normal demand continues for the Midwest, East, Southeast and also Eastern Canada with the CFS [Climate Forecast System] continuing it well into January, too," said Matt Rogers, president of the firm.

Fundamentally, analysts see increased coal-to-gas switching and greater production shut-ins as the key to deterring further price declines.

"[Tuesday's] downside move would appear to set the stage for additional declines to the 2001 lows of $1.76," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. "While some modest price support could be forthcoming at this level, this appears to be a market setting up for a further price plunge that will require some significant assistance from production curtailments or ramped-up coal-to-gas substitution if a bottom is to be achieved. And with the cash market in a near-free fall at a significant discount to nearby futures, further contango expansion would appear to lie ahead.

"[Monday's] price plunge to 13-year low territory was almost purely a function of weather. Weekend updates to the short-term temperatures views saw a major swing toward the bearish side in reinforcing opinions of an El Nino winter that will be slowing storage withdrawals for a couple more months. This Thursday's release will likely show a draw downsized by some 68% relative to the five-year average decline of about 120 Bcf. We find it difficult to envision a number bullish enough to ignite a meaningful price advance unless a significant shift in the short-term views is forthcoming."

In overnight Globex trading January crude oil added 6 cents to $36.37/bbl and January RBOB gasoline fell 2 cents to $1.2335/gal.

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