February natural gas is set to open 4 cents higher Tuesday morning at $2.14 as traders note a slight attenuation in the expected mild temperature pattern going into the end of the month. Overnight oil markets rose.
Weather models continue to call for relatively mild conditions out to the end of the month. In its morning outlook, WSI Corp. said "The latest 11-15 day period forecast depicts widespread above average conditions across the eastern two thirds of the nation. Near to below average temps are limited to the West. [Tuesday's] forecast is not quite as warm as the previous forecast, [and] forecast confidence is average as medium range models are in good agreement with a sharp drop with the PNA and the pattern shift.
"The anticipated drop of the PNA supports a risk to the warmer side over the southern and eastern US by the end of the period. The West and north-central U.S. could run colder."
Analysts see weather forecasts as losing their impact as market drivers as the market ventures on the downward side of the natural gas usage curve. "The temperature factor will begin to loose pricing punch with next week's rollover to the March futures as prompt contract," said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients. "With the winter now in its advanced stage with mild views stretched into the beginning of February, production trends and a healthy supply surplus will be taking on greater focus. Unlike crude and oil, gas production is having some difficulty increasing back to above year ago levels.
"Furthermore, Friday's Baker Hughes rig count posted an unusually large drop in the gas rig count of 13 or almost 9%. On the demand side, the sharp price spike of late last month has had at least some impact on coal to gas switching. Regarding Thursday's storage release, we expect another larger than normal withdrawal but not one that is likely to reduce the storage overhang appreciably. As a matter of fact, the surplus of around 450 Bcf would appear secure through the rest of this month in keeping alive the possibility of an end of season stock of around 2.3 Tcf. Meanwhile, we see plenty of room for a renewed incursion of speculative capital into the short side despite an approximate 13,000 contract reduction in bearish length within latest COT reporting period."
Tom Saal, vice president at FC Stone Latin America LLC in Miami in his work with Market Profile expects the market to test last week's value area at $2.347 to $2.113. Saal says the market could test a second value area at $2.012 to $1.934 "depending on the weather."
In overnight Globex trading February crude oil added 17 cents to $29.59/bbl. and February RBOB gasoline rose 3 cents to $1.0766/gal.