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Sub $2 Futures Seen, But February Called 2 Cents Higher

February natural gas is expected to open 2 cents higher Friday morning at $2.16 although market observers suggest maintaining a short position. Overnight oil markets surged.

Analysts see the market on the downward side of the usage cycle and expect lower prices. "We are maintaining a bearish stance and would suggest holding any short March positions established [Thursday] within the $2.15-2.19 zone in anticipation of an eventual price decline to below the $2 mark," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients. "We are emphasizing the advanced stage of the heavy usage cycle in which the weather factor will gradually diminish. And with updated one- to two-week temperature views generally favoring a renewed mild trend across most of the continental U.S., some additional weakening would appear to lie ahead.

"We viewed yesterday's smaller than expected storage withdrawal as reinforcement to a bearish case. But apparently, the market was able to absorb this release with assistance from bullish spillover from the oil complex and some apparent short covering related to the upcoming blizzard that will soon be arriving into the eastern region. But any cold weather that might associate with a major snowstorm is likely to be short lived and followed by a significant northeast warm-up, especially within the eight-14 day time window that now stretches out to about Feb. 4th. All factors considered, lower values would appear to lie ahead, and we suggest maintaining any existing short March positions with stop protection advised above the $2.21 level close only."

The dangerous blizzard expected to pound the Mid-Atlantic Friday through Saturday will likely generate enough wind generation across the PJM footprint to offset purchases of natural gas for power generation. WSI Corp. in its Friday morning report said, "The storm will hold temperatures in the mid 20s and 30s, [and] fair and moderating conditions are expected to develop behind this system during Sunday into early Monday with highs in the mid 30s to mid 40s.

"However, a frontal system will slide across the power pool with rain and snow showers late Monday through Tuesday. It will be breezy and warmer ahead of this system with highs in the 30s and 40s. The major winter storm will help boost wind gen later [Friday] into midday Saturday, though mainly over the Mid Atlantic. Total output may peak at 3-4 GW. The second storm system will cause wind gen to ramp up during Sunday into early next week."

In overnight Globex trading March crude oil added $1.69 to $31.22/bbl and March RBOB gasoline gained 4 cents to $1.0970/gal.

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