February natural gas gave up more than half of Friday’s gains Monday as traders cited a lack of cold weather capable of any kind of meaningful change in the storage surplus. At the close February had fallen 5.1 cents to $3.011 and March had skidded 4.8 cents to $3.050. February crude oil shed 25 cents to $101.31/bbl.

“Shorts are locked in and doing a little bit of buying, but everyone is waiting for the next weather report. We came in lower this morning because there was no call for a cold weather forecast and things are pretty moderate to mild,” said a New York floor trader.

“I do think that for the rest of the week you’ll see the market push down to $2.88. The spreads are firm and that leads me to think we’ll come off a little more. It wouldn’t surprise me to see us come in Tuesday a couple of cents lower than Monday and traders lean on it for the next few days.”

Low prices haven’t been much of a deterrent to those on the outside seeking to participate in the drilling and exploration for the highly touted shale plays. According to a Bloomberg report more than $8 billion has been committed by Chinese, French, and Japanese exploration firms to shale plays from Pennsylvania to Texas. The competition for acreage comes as analysts point out that they may be paying top dollar for fields where too few wells have been drilled to determine potential production and reserves, said IHS senior equity analyst Sven Del Pozzo (see Shale Daily, Jan. 9).

The New York floor trader may be looking for lower prices, but according to recent government figures directional traders were more or less noncommittal on the long side of the market, but exited short positions in droves. The Commodity Futures Trading Commission in its Commitments of Traders report for Jan. 3 said managed money at the IntercontinentalExchange exited long futures and options (2,500 MMBtu per contract) by 28,887 to 428,669. Short futures and options also fell, dropping 47,472 to 221,072. At the New York Mercantile Exchange long futures and options contracts (10,000 MMBtu per contract) rose by 6,578 to 151, 025 but short holdings fell 8,703 to 260,014. When contract size is taken into account long positions at both exchanges fell by 649 and short contracts decreased by 20,371.

For the four trading days ended Jan. 3 February futures fell 15.7 cents to $2.993.

Temperatures in the East are forecast to get a little cooler, but for the six- to 10-day period, only average readings can be expected along the East Coast. MDA Information Systems in its Monday forecast predicted below-normal temperatures north and east of a broad arc extending from Washington to northern Michigan to Florida.

“The chill that arrives late week in the Midwest will push into the East by the weekend and should get a reinforcing cold push from the North, which drives the belows for the period average. The strongest cold, however, will arrive mid to late period over Western Canada, when a round of strong belows settles in,” the forecaster said. “The combination of a declining AO [Arctic Oscillation], the developing -WPO [Western Pacific Oscillation] and the PNA [Pacific North American pattern] shift to negative all support this cold arrival. Meanwhile, the south-central U.S. should see some warmth return after a seasonal to cool start. Confidence rises just to the higher side of moderate [Monday].”

It is a weather environment like that that has been a big contributor to soft pricing. “It is going to be difficult for prices to hold on to any gains here over the next week or so. The selloff we had on Thursday illustrates our problem. We are not seeing drawdowns from storage along the lines of the same reports a year ago or in years before then,” said Peter Beutel, president of Cameron Hanover, in a morning report to clients. “As a result, each report seems to make the year-on-year surplus or the surplus against the five-year average worse (larger). This week is going to be as difficult or more than last week; last year, we had a drawdown of 138 Bcf, and the five-year average is a drawdown of nearly 144 Bcf.

“Prices are very oversold, and they are plunging into levels that represent long-term deep support. The problem is that industries that may have left when U.S. prices were high are not coming back just for lower prices now. Natural gas-intensive industries are certainly doing well in terms of energy input costs, but they are not increasing demand at the same rate that prices are falling.”

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