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January natural gas was set to open about 6 cents lower at around $2.92 Tuesday as the market noted some heating demand losses in the overnight forecast.
Forecasters see plenty of cold ahead, but near-record production and expectations for a bearish storage report from the Energy Information Administration this week aren't helping the case for the bulls as they look to bounce back.
"Bulls are out of time and out of room," said analyst Brian LaRose of ICAP Technical Analysis, in a note following Monday's sell-off. "To avoid another round of fresh lows in the January contract, bulls must engineer an immediate rebound to start the day Tuesday. Fail to stage a rally and we will be forced to set our sights on lower levels.
"Our initial downside targets in this case are $2.887-$2.884 and $2.800-$2.798-$2.784. Both are well within reach for this week's trading if the bears have their way."
The weather outlook, while still offering plenty of chilly temperatures, trended warmer overnight.
"Weather guidance overnight lost a sizable number of gas-weighted degree days (GWDD), in line with our expectations as we have seen natural gas prices pull back into our support range," said Bespoke Weather Services in a morning update to clients. "Warming trends for Dec. 11-12 as cold reloads and again in the long-range" drove a 10 GWDD decrease in the forecast overnight.
"That being said, weather guidance is not quite as bearish as the GWDD trends show verbatim, as long-range warm risks eased modestly," Bespoke said. The models all point to long-range cold risks late in the 15-day outlook, and "though GWDD losses may allow for a bit more downside in natural gas prices like we are seeing Tuesday, should long-range colder risks return to the forecast we could see prices attempt to set a bottom again in the coming days off late-month cold."
NatGasWeather.com noted that overnight changes in the data had chillier forecasts in the eastern half looking "a little less extreme overall for the next 10 days to lose several heating degree days. Although, the data was a little colder on the back end for after Dec. 17 to gain a couple back, just a lesser amount.
"Even with numerous cold shots lined up through next week, the markets clearly don't see it as cold enough or prices wouldn't continue selling off from last week."
NatGasWeather said the near-record Lower 48 production levels could be an underlying cause of the selling. The recent filing by Rover Pipeline LLC to the Federal Energy Regulatory Commission stating it's prepared to place three supply laterals and associated compression into service could have traders expecting further increases in production, the firm noted.