January natural gas is set to open 5 cents higher Wednesday morning at $3.67 as traders begin to factor in the arrival of meaningful cold after the Christmas holiday. Overnight oil markets plunged again.
Forecasters remain adamant in their call for cold next week, and how that develops could have ramifications for supply-demand balances going forward. Natgasweather.com in a Wednesday morning report said, "while national eight-14 day outlook maps continue to shed warm colors in favor of cooler ones...The next two weekly EIA reports will be woefully lighter than the five-year average, which is clearly bearish, as it will allow deficits to make up significant ground. Although, weather patterns are convincingly looking much colder for the last week of December, even with the data remaining inconsistent on exactly which areas will be hit hardest and for how long.
"This could be causing the markets to wait on more certain heating demand numbers for the important Christmas Eve through New Year's Day period. We continue to believe how the Christmas Eve winter storm plays out could be important to prices as colder temperatures and accumulating snowfall looks fairly certain for the Great Lakes and Northeast. This storm will bring stronger heating demand, but the truly cold Canadian air may not arrive until just after Christmas."
Natgasweather.com is trying to resolve whether the cold weather will resemble a phalanx, a broad methodical sweep across the country from west to east, or will it resemble a dagger aimed at Dixie and the East. "Simply put, it will be gradually getting much colder across the U.S. beginning next week, leading to increasing bullish weather sentiment, but with many details still needing to be resolved," the firm said.
If this weather scenario doesn't materialize as forecast, the resulting market landscape could be significantly changed. Teri Viswanath, director of natural gas commodity strategy at BNP Paribas, said that if the cold doesn't come and persistent cold weather is absent for the remainder of the season, "an unmanageable level of end-of-season inventories will accrue."
In overnight Globex trading January crude oil fell $1.47 to $54.46/bbl and January RBOB gasoline dropped 2 cents to $1.5345/gal.