January natural gas is set to open 3 cents higher Thursday morning at $3.63 in spite of weather forecasts calling for slightly less cold, and expectations of a government storage report expected to show an increasing surplus. Overnight oil markets were mixed.

Weather models backed off the recent trend of ever-colder forecasts. “Thursday’s] six-10 day forecast is not as cold as the previous forecast over the majority of the central and eastern U.S. as models have wavered with the pending cold shot,” said WSI Corp. in its Thursday morning report to clients.

“CONUS GWHDDs are down three to 168.7 for the period, [but] this is 26 above average.

WSI said, “Forecast confidence is only near average at best today. Medium-range models are in reasonable agreement and have shown some consistency with the general large pattern progression. However, there are numerous technical/localized differences and inconsistency throughout the period that impedes confidence levels.”

One area where the forecast cold is being intensely followed is Southern California. Without the flexibility to inject into Aliso Canyon, storage there is down to about 15 Bcf, and any market disruption pricing California border gas higher than SoCal Citygate may force the use of limited Aliso Canyon gas.

“This is the first time in nearly 40 years that this cavern is unavailable for the winter withdrawal season,” said Energy GPS in a report. “During the summer, episodes of high demand were caused by electric generators meeting the cooling demand on the power grid, [and] SoCalGas was able to avoid any use of Aliso this summer through planning and coordination with the power generators.

“Winter load is a different story. Demand is driven by residential and commercial customers that need the gas for space heating. This load is a lot larger than the electric load and not nearly as elastic.”

Making matters worse for Californians is that gas production in the state continues to decline. California marketed production averaged 572 MMcf/d in September, down from nearly 700 MMcf/d in January 2014.

Thursday’s Energy Information Administration (EIA) storage report is likely to be the last featuring an increase in the storage surplus relative to both last year and the five-year averages. Last year 69 Bcf was withdrawn, and the five-year average is for a 61 Bcf pull. This time around estimates are coming in well short of the historical trends.

United ICAP predicts a 35 Bcf withdrawal, and IAF Advisors is looking for a 33 Bcf decline. A Reuters survey of 18 traders and analysts showed an average 43 Bcf with a range of -32 Bcf to -67 Bcf.

Industry consultant Bentek Energy, utilizing its flow model, predicts a 35 Bcf withdrawal but sees any increases in the storage surplus as history going forward. “While this week’s report will add to the surplus relative to the five-year average and to last year’s levels the current supply and demand dailyestimate for the week ending Dec. 8 suggests that the surplus relative to last year will fall to a deficit with the release of the report on Dec. 15 and significantly reduce the surplus relative to the five-year average.”

In overnight Globex trading January crude oil gained 38 cents to $50.15/bbl and January RBOB gasoline fell fractionally to $1.5041/gal.