January natural gas is expected to open unchanged Friday morning at $1.76 in spite of adjustments to less temperature moderation and higher energy demand. Overnight oil markets were mixed.
Little has changed in the big picture weather pattern, although forecasters hint at variable factors in their forecast that lead them to tweak their demand models. "While the pattern is still clearly warm-dominated, with well below normal demand, we did see a tilt today -- for the first time in a few weeks -- that aimed to add some demand to our forecast," said Commodity Weather Group in its morning outlook.
"Slightly cooler short-term changes combine with more variability in the six-10 day and some slightly cooler changes late in the 11-15 day lead to an estimated demand adjustment today toward the positive side. A possible cool wedge on the East Coast the middle of the next week gives us additional caution, and a stronger cool front around Christmas offers to cool the following weekend a bit more.
"The models are also moving away from strong West Coast troughing by the 11-15 day, which 'eases up on the gas' on Eastern super-warm weather. This is not a significant pattern change, though, as well below normal demand continues to dominate the big picture. No significant blocking is indicated to deliver any sort of bigger cold concerns to the Midwest and East," said Matt Rogers president of the firm.
Analysts see the ongoing increase in the supply surplus as the driving market factor near term. "Near-record mild temperature trends that remain broadly based across the eastern two-thirds of the U.S. continue to force the front of the natural gas futures curve downward into 14-year low territory," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients. "Although the upper Midcontinent is seeing some cool temps at the present time, with Canada looking a bit colder, the market appears focused on a renewed warm-up early next week with mild expectations now stretching into the new year in most cases. As a result, the dynamic of storage surplus expansion remains as a formidable bearish force that is keeping potential buyers sidelined in allowing values to draft on down into a price zone that seemed unimaginable a couple of months ago.
"Amidst this mild weather environment, we see additional downside pressures on Henry Hub spot pricing that could easily fall to around the $1.50 area. This will keep the carrying charges in expansionary mode in further emboldening existing speculative shorts who appear to be setting tight for now. So although today's COT [Commitments Of Traders] report will likely be indicating an increase in net non-commercial shorts toward our "red zone" of 2-to-1 (shorts over longs), the possibility of a significant short-covering price rally still appears remote for now. With this in mind, we will continue to caution against attempts to pick a bottom to this market."
In overnight Globex trading January crude oil fell 25 cents to $34.70/bbl and January RBOB gasoline rose a penny to $1.2682/gal.