March natural gas is expected to open 5 cents lower Tuesday morning at $2.09 as weather forecasts moderate slightly from Monday's bullish outlook. Overnight oil markets fell.
Overnight weather models oscillated to the warmer side and forecasters see less heating load. WSI Corp. in its Tuesday morning report said, "[Tuesday's] six-10 day forecast is for residual below-average temperatures over the East and much above conditions over the western and central U.S. Today's forecast is quicker to erode the cold over the East and warmer over the southwestern and central U.S. CONUS GWHDDs dropped 10.6 and are now forecast to be 131.8 for the period. Forecast confidence is average at best today as models are in reasonably good agreement with a moderating trend and eventually a pattern shift by the end of the period. However, there are plenty of technical differences and inherent uncertainty during transitional periods.
"Even with the upward revisions, arctic air can be stubborn to erode and supports a risk back to the colder side over the Northeast and much of the East early in the period."
Very near term heating loads are expected to remain stout. The National Weather Service for the week ending Feb. 13 predicts New England will see 269 heating degree days (HDD) or four fewer than normal. The Mid-Atlantic is expected to see 259 HDD or five more than normal, and the greater Midwest from Ohio to Wisconsin will see 291 HDD, or 15 more than its normal tally.
Analysts aren't buying the notion that a weather-driven price rally has much to stand on so late in the heating cycle. "[Tuesday's] price pullback should not come as a surprise since yesterday's sharp weather-induced rally appeared unsustainable within this advanced stage of the heavy usage cycle and the fact that production is still not showing much of a response to the recent accelerated plunge in oil and gas rig counts," said Jim Ritterbusch of Ritterbusch and Associates.
"Yesterday's strength appeared to be a discounting process focused mainly on a major cold spell that has already begun across the upper Midcontinent and one that is apt to extend further south into key producing regions. This possibility of well freeze offs offered an accelerant to yesterday's advance, but we will further note that a sizable storage overhang that could be boosted by as much as 75 Bcf on Thursday will act as a major cushion in limiting upside price follow-through."
In overnight Globex trading March crude oil shed 24 cents to $29.45/bbl and March RBOB gasoline lost 3 cents to $0.9211/gal.