January natural gas is expected to open 14 cents lower Monday morning at $3.66 as traders see no evidence that the much above normal temperature outlook will not continue through December. Overnight oil markets plunged.
Weather forecasts have changed little, and at the moment there is no convincing evidence that cold, Canadian air will be working its way south later in the month.
"We still expect the next area of focus regarding weather patterns will be what occurs after Dec. 21st as the Pacific jet stream attempts to shift offshore, allowing opportunity for the pool of very cold northern Canadian air to push southward toward the U.S.," said Natgasweather.com in its Monday forecast. "The weather data over the weekend did not convincingly show colder temperatures will move into the U.S. going into the last week of December, but they did continue to show the potential still exists. This may not be enough as the markets will also likely note national eight-14 day outlook maps are still showing plenty of red/warm colors, and this could lead to some disappointment that cooler colors have yet to start showing up.
"With weather patterns not looking nearly cold enough to meet what is supposed to be very strong demand for this time of year, weather sentiment will likely continue to be viewed as overall bearish apart from the brief cool-down early this week due to a relatively chilly weather system sweeping through. This, of course, could change if colder weather patterns begin to look more promising for late December."
In comments to clients, Mike DeVooght of DEVO Capital had some thoughts on the petroleum markets and when the pervasive selling might come to an end. Although petroleum and natural gas are not directly substitutable commodities, lower petroleum prices leading to an overall lower energy cost environment will not go unnoticed by natural gas.
"In regards to when this current break will run its course, it is difficult to predict," he said. "But we still feel that between now and year-end, the market will remain on the defensive. The funds are still carrying a large long position, and we have not seen the producer selling we would expect to see at the bottom. The funds that are still long probably have positions that are tied to indices, so they will not liquidate until year-end, if they do, as market allocators bail on their long energy allocations.
"We feel three to six months from now, the market outlook will be much different than it looks today. We will see a production slowdown and demand will either increase or remain about the same. But either way, we will see a better fundamental outlook in the future. So in the short term, we could very well see the energy market remain on the defensive. But we would not rule out a short-covering rally at any time," DeVooght said.
In overnight Globex trading January crude oil fell $1.38 to $64.46/bbl and January RBOB gasoline shed 4 cents to $1.7353/gal.