December natural gas is expected to open 7 cents lower Tuesday morning at $4.27 as traders are faced with varying weather model interpretations in the more distant time frames. Overnight oil markets fell.
The longer term, 10-to 15-day models, are becoming less certain especially in the latter period of the forecast. In its morning 20-day Energy Outlook meteorologist Joe Bastardi of WeatherBELL Analytics said "[There is] Major mayhem in modeling, [and] I don't trust any of them after Day 10. [The] Fear in Days 10-15 is that it will be colder over the East, [and] The trough in the 8-12 Day may be as strong as now, with arctic air back involved.
"Hold on, we are going to continue to blend in our chief analogs to help us with what is a period where all the models are all over the place in the longer term. For example, by Day 15, the ECMWF [European model] looks extremely strange...[and] all the references to the pattern in 1976 did at least work for the month of November.
"The warmup is reversed, with the threat of arctic air in Week 2 getting involved again (not initially with the first storm that pulls up). Use our analogs to factor into the models and any warm up to above normal [becomes] talk for anything more than a few days in this pattern for almost everywhere in the U.S. It has to be tempered with the realization that there is a lot going on that the models may not be able to handle," said Bastardi. "That is not to say we have to be right, it does say when you here talk of warmer against the normal be cautious. After all it will be hard to be as cold as what we have gone through the past 10 days."
WeatherBELL calculates well above normal accumulations of heating degree days (HDD). For the next 15 days WeatherBELL says nationally expect 360.7 HDD, well above last year's 334.2 and a long term average of 284.6 HDD.
If weather model uncertainty wasn't enough for traders to handle, "This market continues to swing violently in both directions driven by updates to the short term temperature views. Weekend adjustments tilted short term outlooks bullish as this week’s trends are likely to be colder than previously expected," said Jim Ritterbusch of Ritterbusch and Associates. "Furthermore, next week’s expected cold deviations from normal are much larger than those anticipated last Friday. As a result of the extreme volatility, Nonetheless, we are maintaining our expected trading parameters and it would appear that the high side of our expected high price parameter of 4.25 was violated today just as the previous low side of about $4.05 was taken out late last week.
"Fundamentally, a supply deficit of 6-7% is still going head to head with a record pace of production that is exceeding year ago levels by some 6 ½ -7%. Looking ahead to Thursday’s storage release, we will be looking for a decline of about 5-6 Bcf that will likely be followed next week by a huge supply drop possibly approaching triple digits that will expand the supply deficit considerably. Meanwhile, we are still looking for a place to re-establish some longer dated bull spreads but we will await a return to a $3 price."
In overnight Globex trading December crude oil eased 6 cents to $75.58/bbl and December RBOB gasoline fell a penny to $2.0174/gallon.