January natural gas is set to open 3 cents higher Tuesday morning at $3.62 as traders adjust to a deeply oversold market and weather forecasts show no significant changes from forecasted warm trends. Overnight oil markets rose.
In its extended forecast, WSI Corp. shows normal to above normal temperatures continuing across the entire country. "[Tuesday's] 11-15 day period forecast is similar, if not a tad warmer than the previous forecast across the eastern U.S. Forecast confidence is about average today, [and] medium-range models are in modest agreement with the general pattern and southern stream storm track.
"There are risks in either direction due to the timing of storm systems," WSI said. "There may be more of a risk to the cooler across the southern half of the nation, but the Northwest, northern Rockies and the north-central U.S. has a slight upside risk."
Analysts see Monday's 21-cent decline as derived at least in part from the imploding petroleum complex. "Although the [natural gas] market may have scooped up some bearish overflow from the oil complex, the primary driver behind today's new lows is still some mild temperature expectations that have been extended into the fourth week of this month in most cases," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday to clients. "Based on current forecasts, at least three more sharply downsized supply injections will likely be forthcoming with end-of-year supply developing a significant surplus against year-ago levels. Thursday's [storage report] release will likely show a withdrawal of around 40-45 Bcf that would narrow the supply deficit against last year by another sizable 50 Bcf or so.
"The process of reversing this bearish dynamic of deficit contraction will of course require a sizable shift in the short-term temperature views back to the cold side. And with the arrival of January, overall winter weather trends should acquire some clarity and supplies will likely be viewed as ample to meet the needs of even a cold January. Overall, this market's current double dose of mild temperature expectations and an expected elevation in production should keep the front of the curve under pressure through the rest of this week regardless of Thursday's EIA release. We look for our expected support at $3.55 to be tested as early as [today] and a further price slide as low as $3.40 is certainly on the table if the forecasts continue to tilt toward the mild side beyond next week."
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile expects the market to test Monday's value area at $3.673-3.609 followed by a test of $3.824-3.748. "Eventually," he said, look for a test of $3.936-3.876. "Seasonal historical volatility is back at 52.2% and rising...this means expect radical price changes in either direction."
In overnight Globex trading January crude oil rose 68 cents to $63.73/bbl and January RBOB gasoline gained a penny to $1.7192/gal.