February natural gas set to open Friday about 2 cents lower at around $3.172 amid mixed changes overnight in the weather guidance and questions over how much cold could arrive next month.
"Some of the overnight data was slightly colder with a weather system into the east-central U.S. Jan. 28-29, but was milder trending before and after," NatGasWeather.com said in a morning note to clients. "Most importantly, the overnight data failed to trend any colder over the eastern half of the country for the first few days of February.
"...What we still view as most important going forward is whether cold Canadian air arriving into the Rockies and Plains Feb. 1-2 will advance eastward Feb. 3-7," the firm said. "We believe this will be required for bullish weather sentiment to return, and the latest overnight weather data didn’t offer the cold camp any further evidence of it occurring."
Bespoke Weather Services counted some overnight gas-weighted degree day losses in its 15-day outlook.
"Yet natural gas prices remain bid, likely because model guidance in the 11-15 day time period continues to show ridging building back across Alaska that could result in more widespread cold into the second week of February," Bespoke said. "Given limited stockpiles, this could be very bullish for natural gas."
The Energy Information Administration (EIA) on Thursday reported a 183 Bcf withdrawal from U.S. gas stocks for the week ending Jan. 12, a bearish miss versus market expectations, although inventories remain more than 300 Bcf below year-ago levels and the five-year average.
The February contract traded as low as $3.070 following the release of the EIA data before rallying in the afternoon.
"Thursday’s price action for February natural gas made a statement that the market was not ready to break out of the longer term consolidation pattern," according to analysts with Rafferty Commodities Group, who pointed to $3.270 on a closing basis as an important target for bulls.
"With the close at $3.189 after making a low of $3.070, the market did get a nice bounce,” Rafferty analysts said. “We are still within striking distance of the $3.270 area. If the upper end of the consolidation pattern cannot be taken out, then that usually indicates the likelihood of prices going lower."
ICAP Technical Analysis analyst Brian LaRose said he's "not ready to give up on the bulls just yet, but after Thursday's sharp reversal bears can argue that the structure of the $2.568 to $3.288 advance is a completed ABC pattern.
"However, bears have no case unless support is broken," LaRose said. "To indicate trouble is brewing, the bears would need to force natural gas below $2.953-2.928. As long as natural gas can hold this band of support bulls still have a shot at $3.431-3.477 and higher."
February crude oil was set to open about 79 cents lower at around $63.16/bbl, while February RBOB gasoline was down about 3 cents to $1.8523/gal.