Daily GPI / Markets

Traders Mull Market Direction; March Seen 2 Cents Lower

March natural gas is set to open 2 cents lower Tuesday morning at $2.92 as traders confront a new set of forecasts showing still milder weather conditions. Overnight oil markets rose.

Weather models overnight continued the trend of increasing warmth, and traders are looking for ongoing volatility. "[Tuesday's] 11-15 day forecast is warmer over the East and northern tier when compared to yesterday's forecast," said WSI Corp. in its Tuesday morning report to clients. "The West and south-central U.S. are cooler. CONUS GWHDDs are down six for days 11-14 and are forecast to be 107.1 for the period. These are 18.2 below average."

Risks to the forecast include a "shift toward a negative PNA [Pacific North American pattern] and the bulk of the model guidance offers a minor cooler risk and trend with the forecast across the CONUS, especially across the north-central U.S."

Traders don't see the breach of technical support at $3 as all that calamitous "What we saw Monday was a trend day, which is a type of exhaustion pattern where the market is obviously going south and after the initial balance each half hour failed to make a high greater than the previous half-hour," said Tom Saal, vice president at FCStone Latin America in Miami and an adherent of Market Profile. "You are making sequential lower highs throughout the day. People are getting out of long positions, and we should see a rally" Tuesday.

"This down move should be coming to an end,” he said. “I don't disagree with breaching $3. The whole-dollar numbers have always been significant in natural gas, and it could foretell other things to come. We have several untested value areas above us and several below, so we should continue to see ongoing volatility," he said.

Others see continued price weakness. "This market is currently posting lowest levels in almost three months and appears capable of further declines before the next significant support begins to develop at about the $2.80 area," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. "Updates to the short term one- to two-week temperature views that are beginning to stretch through month’s end are not yet showing much shift away from above normal trends that will be translating to smaller than usual seasonal storage draws.

"This implied expansion in the supply surplus is a major bearish market dynamic that will only be reversed by a major shift in the weather views. But with the arrival of March, temperature deviations from normal will be exerting less impact on HDDs than was the case last month and with season-ending supply acquiring some clarity, the process of piecing together meaningful price advances of 25-30 cents will become heavily reliant upon non-weather factors."

In overnight Globex trading March crude oil added 36 cents to  $53.29/bbl and March RBOB gasoline rose 2 cents to $1.5641/gal.

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