March natural gas is expected to open 12 cents lower Friday morning at $3.07 as funds and managed accounts appear to be entering the market on the short side inspired by weak fundamentals and technicals. Overnight oil markets were mixed.
Overnight weather models again forecast more moderate conditions and a lessening of heating load. "[Friday's] 6-10 day period forecast is generally warmer than yesterday's forecast over the eastern two thirds of the US," said WSI Corp. in its morning report to clients. "The West is a bit cooler, [and] CONUS GWHDDs are down 6.4 to 122.1 for the period. These are 25.1 below average."
WSI cautioned that "The forecast has risks in either direction depending on the exact speed or progression of the pattern. There is a slight colder risk during the front half of the period, but a faster progression, similar to the ECMWF [European model] offers a warmer risk over the East and Northeast by the end of the period."
Analysts see a worsening fundamental and technical environment. The moderating weather outlooks are "forcing the market to discount some continued downsized storage withdrawals as were seen per yesterday's EIA release," said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.
"While the current surplus against five-year averages is modest at only 59 Bcf, the likelihood that this overhang will be increasing appreciably going forward has re emboldened the money managers who appear to be re-entering the short side of the market in force. Increasing bearish opinions are also being supported today by technical deterioration that has seen March futures drop below last month's well defined support at the $3.11 level. From here, we look for this area to provide resistance.
"But, at the same time, we are recognizing the volatility of the daily updates to the 1-2 week temperature forecasts and, as a result, we are going to stay with our trading plan that suggests stop protection on existing long March positions below the $3.10 level on a close only basis. Should we get pushed off of the long side, additional downside price possibilities into the $2.80-2.90 zone would be implied. Should such a price decline be realized next week, we will look to reinstate 2017 bull spread positions."
The Labor Department reported the U.S. generated 227,000 new jobs in January, the largest gain in four months. Economists had been expecting a rise of 197,000 in new nonfarm jobs. The unemployment rate rose a tick to 4.8%.
In overnight Globex trading March crude oil gained 17 cents to $53.71/bbl and March RBOB gasoline fell a penny to $1.5255/gallon.