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Expected Storage Stats Trumping Near-Term Weather

January natural gas is expected to open 2 cents higher Wednesday morning at $4.31 as trader expectations of Thursday's high inventory withdrawal offset near-term warming. Overnight oil markets rose.

The National Weather Service in its Tuesday six- to 10-day outlook shows a broad fairway of below-normal temperatures bounded on the west by Minnesota and Texas and on the east by a broad arc from New England to northern Ohio to southern Illinois to Louisiana. The Southeast from Virginia to Florida is expected to be above normal along with California and portions of the northern Rockies.

Analysts all agree that Thursday's inventory report will feature a titanic draw, but just how big is a matter of debate. "The consensus view for Thursday's report is still forming, with a wide dispersion of forecasts that is typical of weeks with extreme temperatures," said Tim Evans of Citi Futures Perspective. "Our model projects a net withdrawal of 228 Bcf, but we have seen estimates ranging to 270 Bcf or more, and we'd not be surprised to see the newswire surveys in the vicinity of 250 Bcf.

"While it's clear that heating demand for last week was quite strong and bullish comparisons with both the date-adjusted 70 Bcf draw from last year and the 133 Bcf five-year average will result, we note that high expectations also carry some risk of disappointment. A drop like the 228 Bcf net withdrawal our model is looking for would be clearly bullish on a seasonally-adjusted basis, for example, but would be a bearish disappointment for those penciling in a draw of 250 Bcf or more.

"The market may also have some downside risk associated with the relative warming trend following last week's cold snap that will translate into more moderate storage withdrawals to follow. That said, it looks as though storage levels may continue to decline at least somewhat faster than average over the next few weeks."

Following this week's report Evans is looking for a pull of 147 Bcf for the week ended Dec. 20.

Industry consultant Genscape reported that even sunny California was hit hard by the recent cold incursion. In its Wednesday morning report it said, "California relied heavily on storage to meet the demand spikes in the past two weeks. Storage withdrawals increased by 2.5 Bcf/d month-on-month to 2.6 Bcf/d. Storage inventory level is currently lower than the previous three years and about 90 Bcf lower than the level of the previous year."

In overnight Globex trading January crude oil added 13 cents to $97.35/bbl and January RBOB gasoline gained a penny to $2.6619/gal.

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