March natural gas is expected to open 2 cents lower Monday morning at $2.12 as traders factor in near-term temperature moderation. Overnight oil markets plunged.
Overnight weather models trended warmer near term, yet the longer-term picture is less clear. Commodity Weather Group in its Monday morning report said, "Adjustments this week are mostly in the warmer direction for the Midwest to East with some impressive warmth setting up for the six-10 day, which progressed forward from the warm 11-15 day outlooks of late last week. Initial days following the snow storm are not yielding as cold of impacts expected, probably thanks to the lack of a serious high-pressure area behind it. Clouds and fog from daytime melting are holding the big city temperatures warmer this morning and that is assisting some short-term warmer changes.
"Meanwhile, the 11-15 day is the big looming forecast challenge [Monday] morning as the American and Canadian models keep favoring colder trends, while the European lingers some modest warmth both East and South."
A challenging 11- to 15-day forecast or not, analysts suggest the process may have already begun as the market starts factoring a period of more moderate temperatures.
"In our experience, a cold snap typically gives the natural gas market three chances to rally," said Tim Evans of Citi Futures Perspective in closing comments to clients Friday.
"Once on the forecast, once on the cold itself, and one more time if a large enough impact on storage is reported. In the current cycle, we saw prices rally to a peak on Jan. 8 on the back of the forecast for cold, but futures prices have only managed to move sideways on the week's cold
"We see the market as having one more chance to move up in anticipation of a larger storage withdrawal for the week ended Jan. 22. However, the failure to move higher on the cold itself does warn that the market may continue to look somewhat further forward to the warming trend for the week's ahead."
Heating load forecasts call for near-term ease. The National Weather Service (NWS) for the week ending Jan. 30 expects New England to see 235 heating degree days (HDD), or 48 below normal, and New York, New Jersey and Pennsylvania should expect 235 HDD as well, or 28 below normal. The greater Midwest from Ohio to Wisconsin is forecast to have 233 HDD, or 60 below its normal seasonal tally.
In overnight Globex trading March crude oil fell $1.08 to $31.11/bbl and March RBOB gasoline lost 2 cents to $1.0930/gal.