March natural gas is set to open 7 cents higher Monday morning at $2.13 as overnight weather forecasts call for a healthy shot of near-term cold. Overnight oil markets plunged.
"This Monday is quite a bit different from a week ago when the models collapsed on colder threats and we saw significant warmer gains," said Matt Rogers, president of Commodity Weather Group, in a morning report to clients. "Instead, we are seeing very strong heating demand gains, thanks to an impressive cold push later this week that peaks over the holiday weekend for the Midwest and East.
"Impacts are impressive for especially the Midwest to the Northeast, with potentially the coldest weather seen so far in this otherwise mostly warm-dominated winter story. The models have bounced around on details, and there is still some concern they could overdo cold, based on overestimation of snow cover and given the speed of the event." In the 11- to 15-day period, however, the models trend warmer, Rogers said.
Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm, saw last week's late rally a somewhat of a disappointment. "On a trade basis, we have been looking for a rally as an opportunity to establish short hedges. The recent rally fell short of our target levels of $2.60-2.70 on the spot market." Currently, DeVooght advises trading accounts and end-users to stand aside. Producers, however, are counseled to sell an April-October strip at $2.70. The April-October strip Friday settled at $2.298.
Even with Friday's 9-cent surge, technicians aren't convinced a meaningful advance is under way. "With the bulls punching through $2.039 Friday, a bounce is likely to start the week," said Brian LaRose, a technical analyst with United ICAP. "But we are only looking for a dead cat bounce at this time, hence the neutral trend. To suggest something much more bullish is brewing a push up and over $2.238 is required. As long as natural gas remains below the $2.238 level, $1.864-1.857 ("a"="c" from $2.495) will be our downside objective."
In overnight Globex trading March crude oil fell 95 cents to $29.94/bbl and March RBOB gasoline lost 3 cents to $0.9640/gal.