January natural gas is set to open 6 cents higher Friday morning at $3.75 as weather forecasts continue to provide a strong underpinning to the market. Overnight oil markets rose.
Weather models overnight continued with the pattern of upcoming frigid temperatures up to Christmas, but honing the details of focused temperature forecasts remains difficult.
"The two things we know is that (1) there is an impressive supply of very cold air affecting North America over the next two weeks and (2) the models historically can struggle a lot with details of the boundaries of these air masses," said Matt Rogers, president of Commodity Weather Group, in a Friday morning report to clients.
"Slight trajectory and timing differences can lead to large swings in temperature expectations. From a large-scale natural gas perspective, this is an impressive cold pattern with national demand continuing to run above normal over the next two weeks, but from a localized power perspective, this seems to continue to deliver headaches.
"[Friday's] changes are much colder in the West overall with demand gains even into California. The East Coast is a bit colder in the six-10 day but then warmer in the 11-15.”
For some perspective, the normal high in Chicago during December is about 36 degrees, according to AccuWeather.com. Friday's high is expected to be 26 degrees, and next Friday's high is forecast to be 21. Friday, Dec. 23's high is anticipated to reach 32. Only one day during the next two weeks is the high forecast expected to dip into the single digits.
According to analysts, natural gas pricing is all about near-term weather and less about longer-term macro impacts. "This market continues to push higher to levels not seen in about two years, with cold weather forecasts continuing to offer primary bullish impetus by a wide margin," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients.
"Although some bullish discussion could be had regarding this year's downsized production, strong export activity, coal to gas displacement, etc., this market will be almost entirely focused on daily updates to the one- to two-week temperature views. Occasionally, some models will hint at some moderation a couple of weeks out but, for now, consensus of expectations remain heavily skewed in favor of polar conditions that will be broadly spread across the nation's midsection, especially next week when Chicago could see subzero conditions. These colder weather trends have already been developing in force this week to the extent that next week's EIA release could be posting a contraction in the storage surplus against five-year averages of as much as 50 Bcf that would more than offset yesterday's reported expansion.”
In overnight Globex trading January crude oil rose 49 cents to $51.33/bbl and January RBOB gasoline added a penny to $1.5175/gal.