January natural gas is set to open 5 cents higher Thursday morning at $1.84 as the seemingly never-ending string of successive warmer forecasts was broken. Heating requirements were seen slightly higher. Overnight oil markets were mixed.
Medium-term weather forecasts finally broke the string of successive warmer iterations. WSI Corp. in its Thursday morning report said, "[Thursdays] 11-15 day period forecast is now several degrees cooler over the West, whereas a touch cooler over the East when compared to yesterday's forecast. CONUS GWHDDs have risen by +2, coming in at 100.2 for the period. Forecast confidence is considered slightly above average standards due to excellent agreement between the models.
"Temperatures could come in colder across the Rockies and Plains during the latter half of the period as heights begin to rise over the Northwest."
Traders are expecting the pattern of warm temperatures for the last week to resonate in the 10:30 a.m. EST report by the Energy Information Administration. Last year 62 Bcf was withdrawn and the five-year average comes in at a 120 Bcf usage. This week estimates are sharply lower.
Industry consultant Bentek Energy, utilizing its flow model, calculates a 38 Bcf withdrawal, but it cautions that last week's unexpectedly robust 76 Bcf pull highlights the uncertainties of fuel switching in a price environment of coal-to-gas substitution. ICAP energy is looking for a 44 Bcf pull, and a Reuters survey of 21 traders and analysts revealed an average 40 Bcf withdrawal with a range of -28 Bcf to -67 Bcf.
Tim Evans of Citi Futures Perspective is expecting a 43 Bcf withdrawal and going forward he sees "the year-on-five-year average storage surplus climb[ing] from 236 Bcf as of Dec. 4 to 489 Bcf as of Jan. 1. While the growth in natural gas supply is a background factor for the market and we view the price decline as putting pressure on U.S. producers to leave more gas in the ground, the immediate cause has been persistent warmer than normal temperatures, especially in the key population centers of the Midwest and Northeast."
Evans, however, is looking for a "relief rally" and suggests playing the market from the long side. He recommends entering the market with a buy stop in the February contract at $2.08 with a protective sell stop at $1.78 to limit risk on the trade.
February futures settled Wednesday at $1.866.
In overnight Globex trading January crude oil fell 33 cents to $35.19/bbl and January RBOB gasoline rose 2 cents to $1.2518/gal.