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Further Declines Seen, Yet January Called 3 Cents Higher

January natural gas is set to open 3 cents higher Tuesday morning at $3.54 as overnight weather models are mixed and technical analysts still see the uptrend intact. Overnight oil markets rose.

MDA Weather Services in its morning six- to 10-day outlook said, "The forecast sees a mix of detailed changes in this period, including a colder start to the period as another round of arctic air intrudes into the Midcontinent. Temperatures are now forecast to be within just a few degrees of daily records in parts of the Midwest in the early stages, with some models still offering a colder minimum there.

"Ahead of this incoming cold air mass, however, is a slower moving front which has the East Coast being warmer with early day highs on day six. Cold is expected to begin breaking down within the second half of the period, when more seasonal conditions return nationally."

Risks to the forecast include "models [warming] along the East Coast on day six ahead of a slower moving cold front" and models could also be slow to warm Texas late in the period presenting a cold risk there."

On its weather map MDA shows the epicenter of the six- to 10-day cold centered over Iowa and Illinois. Six days from now AccuWeather.com forecasts the high in Chicago at 16 with a low of 15, which is 20 degrees below normal.

Analysts see a somewhat milder weather outlook auguring additional price weakness. "We feel that the price pullbacks have a bit further to run as updated six-14 day temperature views would appear to favor additional declines to the $3.40 level as a minimum," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients.

"Although a return to normal trends across most of the U.S. may not appear particularly bearish, the contrast against this week's broad-based cold weather extremes is quite sharp. Additionally, temps along the heavily populated eastern seaboard are expected to be above normal to beyond the Christmas holiday break. Consequently, the strong storage withdrawals that will be reported this week and next by the EIA could prove brief with the agency's report to be released on the 29th of this month likely be sharply downsized."

In overnight Globex trading January crude oil gained 27 cents to $53.10/bbl and January RBOB gasoline added 2 cents to $1.5595/gal.

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