February natural gas is set to open unchanged Wednesday morning at $2.32 as traders prepare for an onslaught of cold air but at the same time try to discern any late-month El Nino-driven warming trends. Overnight oil markets plunged.
Weather models changed little overnight, with the pattern of near-term warmth giving way to an intense cold blast. "No major changes were made to the forecast [Wednesday] in this [six- to 10-day] period, which continues to feature very cold temperatures in the Midcontinent," said MDA Weather Services in a morning report to clients. "Several rounds of high pressure are forecast to dive into the region from Canada, bringing much below normal temperatures to the Midwest, with belows spanning into the South as well.
"While the Northeast holds on to seasonal readings in the composite, belows are expected to return there late. Cold air support comes from higher-latitude sources [-AO (Arctic Oscillation)/NAO (North American Oscillation)], with this period expected to feature the coldest air of the season thus far in the Midwest."
MDA cautioned that risks to the forecast include "uncertainty remain[ing] with the intensity of cold in this period, with risks being warmer as cold could underperform guidance. The European model brings warmer risks to Texas in the second half."
Harrison, NY-based Bespoke Weather Services in its morning report said, "all models struggle to determine just how significant the influence of the El Nino is as we move into the second half of January."
Market technicians see the move higher still intact. "Still peg $2.385-2.457 as the gatekeeper to higher prices," said Brian LaRose, a market technician with United ICAP. "Bust through here, and the bulls have room up to $2.667 next. Fail to clear this narrow band of resistance, and a deeper retracement of the $1.684 to 2.387 advance becomes possible near term.
“At this time we will be counting any deeper pullback as corrective in nature, not a resumption of a down trend," he said.
For adherents of Market Profile, it is time to implement the Monday-Tuesday trading rule for weekly price targets. Tom Saal, vice president at FC Stone Latin America LLC, said to look for the market to test [Tuesday's] value area at $2.289 to $2.263 before moving on and testing a second value area at $2.229 to $2.199. The Monday-Tuesday rule requires traders to follow a market breakout of the initial balance, $2.376 to $2.257, either higher or lower. Saal places trading targets higher at $2.493 and $2.434 and trading targets on the downside at $2.198 and $2.134.
In overnight Globex trading February crude oil fell $1.20 to $34.77/bbl and February RBOB gasoline shed 5 cents to $1.2055/gal.