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Weather Models Show Moderation, Lack of Consistency; January Called 23 Cents Lower

January natural gas is expected to open 23 cents lower Monday morning at $3.23 as weather forecasts are now calling for less cold air and at the same time are becoming less consistent in the more distant time frames. Overnight oil markets fell.

In its morning outlook, Commodity Weather Group said, "The three biggest issues this morning are the (1) weaker cold air arrival, (2) the bigger divergence in the modeling especially by the 11-15 day, and (3) then the lack of consistency/consensus in holding the pattern together at day 15 itself.

"Just like last week, the models continued over the weekend to struggle, pushing the cold forward in time. While the six-10 day looks colder than it did back on Friday's forecast, it is not nearly as cold as what simple progression would have offered. The 11-15 day guidance is very fractured this morning, with a much warmer East on the European guidance, a much colder everywhere look on the Canadian, and then a weaker East Cold appearance on the American ensembles. We favored a blend of our prior outlook and the American ensemble, which is in the middle ground today among the guidance. The lack of pattern stability at day 15 also reduces confidence with warmer risks to the 16-30 day," said Matt Rogers, president of the firm.

Risk managers are holding on to existing positions. "[Last] week represented the first time in 2014 that storage levels were higher than last year's levels at this time," said Mike DeVooght, president of DEVO Capital. "Gas broke sharply to close the week and until the U.S. experiences significantly cooler temperature, the negative fundamentals will continue to weigh down the natural gas market."

DeVooght suggests that trading accounts hold long January $4.20 calls and Short January $3.90 puts, and hold long February $4.20 calls and short February $3.90 puts. End-users should hold long January $4.20 calls and Short January $3.90 puts, and hold long February $4.20 calls and short February $3.90 puts.

In overnight Globex trading February crude oil eased 20 cents to $56.93/bbl and February RBOB gasoline fell fractionally to $1.5727/gal.

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