January natural gas is set to open 10 cents higher Wednesday morning at $3.73 as overnight weather models show a stronger Arctic air mass than previously thought. Overnight oil markets fell.
"The big story overnight is the strengthening of next week's Arctic out-break on the various models," said Matt Rogers, president of Commodity Weather Group, in a morning report to clients.
How quickly weather forecasts can change. "This air mass continues to look more powerful, with the main impact area for severe early season cold from Calgary to Chicago where most modeling now has strong below for the period average (15 or more degrees colder than normal). There might be a risk that the models are overdoing the cold in spots by over-factoring snow-cover impacts, but the overall situation looks like the strongest cold outbreak in December in several years.
"There is also a real concern that the models are not sending enough cold air into the Deep South. When air masses get this big, they can surprise the models on their southern reach," Rogers said.
Given Tuesday's weak finish, market technicians are mulling a market retreat, at least in the short term. "On one hand, the bulls were able to bust through the January high at 3.675 intraday. On the other hand, they could not prevent natgas from falling back below $3.675 before the close," said Brian LaRose, a market technician at United ICAP, in closing comments Tuesday.
"As a result, we now have a shooting star top on the daily candlestick chart and bearish divergence on the intraday RSI [Relative Strength Indicator]. Given the situation, we would not be surprised to see some consolidation, even a pullback from here."
Tom Saal, vice president at FCStone Latin America, in his work with Market Profile expects the market to test Tuesday's value area at $3.683 to $3.637. Market Profile is a breakout trading system, and Saal said to follow the market higher or lower should it break out of its initial balance at $3.712 or $3.579. Saal placed trading objectives higher at $3.779 and lower at $3.513.
In overnight Globex trading January crude oil fell 58 cents to $50.35/bbl and January RBOB gasoline shed a penny to $1.5274/gal.