January natural gas is expected to open 10 cents lower Friday morning at $3.54 as traders balance a weakening technical outlook with expectations for robust Christmas cold. Overnight oil markets rose.
Weather forecasts overnight continued to emphasize the entry of well-below normal temperatures into the lower 48 during and after Christmas and pointed out that model data could lead to tweaks in the forecast. WSI Corp. in its morning 11- to 15-day outlook said "[Friday's] 11-15 day period forecast has trended colder across the southwestern two thirds of the nation, whereas a touch warmer over the Northeast when compared to the previous forecast.
"Forecast confidence is considered near to slightly below average due to increased model uncertainty in the 11-15 day period forecast. · While confidence is higher than average with regards to a series of cold air masses to impact the lower 48, the models are having a difficult time with representing the high-latitude pattern during the 11-15 day period forecast. This suggests that the forecast could change a bit over the weekend as the models better resolve the pattern.
"As it stands today, colder risks are favored across the Great Lakes Region, with slight warmer risks across the Southeast if the Southeast ridge can flex prior to cold air moving in," the firm said.
Despite recent weakness, top traders sense an ultimate buying opportunity. "[Thursday's] trade looked a lot like last Thursday's as a seemingly supportive storage report was quickly followed by a price plunge of more than 15 cents and a lower close," observed Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients. "This type of price action strongly suggests that our anticipated support at the $3.55 level could be tested within the next couple of trading sessions. We may look to probe the long side for a trading turn on such a development as updates to the short term temperature views still appear tilted in a bullish direction.
"Although expected deviations from normal don't appear severe when looking out toward month's end, storage withdrawals will likely be stepped up considerably following next week's release. As far as [Thursday's] data was concerned, the 64 Bcf injection exceeded average street ideas by some 3-4 Bcf while finally eliminating the long standing deficit against last year. From here, we look for the y over y surplus to increase appreciably since the upcoming January-February period is highly unlikely to repeat last year's frigid trends. Overall, we still expect a near term trading affair but we will be looking to approach the long side of Feb futures on a further price pullback of around 10-12 cents."
In overnight Globex trading January crude oil rose 62 cents to $54.73/bbl and January RBOB gasoline gained a penny to $1.5401/gallon.