The expiring January contract is called 9 cents higher Tuesday morning at $2.32 as traders square books before the end of January trading and weather forecasts ratchet cooler. Overnight oil markets were mixed.
Overnight weather models trended significantly cooler out to mid-January. WSI Corp. in its Tuesday morning outlook said, "[Tuesday's] 11-15 day period forecast has trended much colder across the CONUS, focused about the East, when compared to yesterday's forecast. CONUS GWHDDs are up +16 to 155.9 for the period. Forecast confidence is considered near to slightly below average standards due to fair agreement with the models regarding the high-latitude pattern, but there is increased uncertainty across the U.S. late in the period regarding a possible arctic air mass intrusion.
"Colder risks are favored across the Plains and East during the period as models continue to resolve the -EPO [Eastern Pacific Oscillation]/North American pattern response."
Analysts readily acknowledge the weather component of Monday's 20-cent advance in the January contract but also see a long-awaited reduction in production due to sliding rig counts. "Although the market's response to colder temperature forecasts that have been evolving during the past week would appear much exaggerated, it should be kept in mind that the futures had become much oversold technically and that long-standing short position holders have been looking for a reason to book profits ahead of year's end," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients.
"This window dressing could be sustained through the rest of this week as daily updates to the short-term temperature views have been looking sequentially bullish. Despite the fact that broad-based below-normal trends are not anticipated out to about Jan. 11th, some longer-term models are beginning to favor some much below normal patterns across the second half of January that could make a significant dent in the large storage surplus.
"While we are not yet ready to take a season ending 2.4 Tcf storage level off of the table, we are forced to concede to some ongoing structural shifts that may force some downward adjustments in our longer-term supply expectation. The virtually uninterrupted decline in the gas rig count during the past year appears to be gaining momentum to the point where a production response is being evidenced."
In overnight Globex trading February crude oil rose 34 cents to $37.15/bbl and February RBOB gasoline eased fractionally to $1.2422/gal.