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February Survives 'Near Death' Experience, Called 13 Cents Higher

February natural gas is expected to open 13 cents higher Wednesday morning at $3.07 as traders note Tuesday's robust recovery and factor in near-term temperatures well below normal in important markets. A supportive storage report Thursday is also anticipated. Overnight oil markets eased.

Near-term weather forecasts call for sharply below-normal temperatures over key energy markets. "An area of low pressure will shift east-northeastward over the western Atlantic, [and] light to moderate precipitation will trail this system over portions of the Mid-Atlantic," said Kari Strenfel, Wunderground.com meteorologist, in a Wednesday morning forecast. "As this moisture interacts with an arctic high-pressure system over the eastern third of the country, a mixture of rain, freezing rain and snow will develop over the Carolinas, as well as parts of Virginia and West Virginia. In addition, the aforementioned high-pressure system will bring temperatures 20 to 30 degrees below normal across the Great Lakes, the northern Mid-Atlantic and New England.

"Meanwhile, a trough of low pressure will develop over the western Gulf Coast on Wednesday. This system will usher moderate rain across the western and central Gulf Coast. Just to the west, a cluster of snow showers will develop over the southern Rockies and the southern high Plains. A lack of moisture over the region will keep snow showers light in nature, although moderate to heavy snow showers will be possible along favorable mountain slopes. High pressure will keep weather conditions relatively calm to the west of the Continental Divide. The exception to this will be over the Pacific Northwest, where an onshore flow will bring a chance of late evening showers."

Longer term, weather forecasters expect colder temperatures by the last week of January but for now don't see the evidence as terribly convincing. "We believe the onus still remains on colder temperatures to arrive if bearish weather sentiment is to ease or end longer term," said Natgasweather.com in its Wednesday morning report. "The problem is there's decent potential for cold to arrive after Jan. 23-24th, but the data is not convincing, and until it is there will be wildly varying solutions produced by the weather models.

"In addition, this type of pattern can keep showing much colder temperatures in the longer range weather charts, but each day it gets closer, the arrival of cold Arctic temperatures keeps getting pushed back. We still like colder air spilling into the northern U.S. at times during the last week of January, but as we have been saying, it could just end up more seasonal instead of being brutally cold as Arctic air struggles to push southward out of Canada."

This week's storage report is expected to show a hefty draw in the neighborhood of 225 Bcf, above the five-year average of 191 Bcf. If National Weather Service (NWS) estimates of heating requirements across important population centers for the week ended Jan. 17 are correct, next week's inventory report may come closer to the five-year average draw of 175 Bcf.

NWS predicts that for the week ended Jan. 17 New England will see 283 heating degree days (HDD), or right at the seasonal norm. The Mid-Atlantic, including New York, New Jersey and Pennsylvania, should shiver under 269 HDD, or just six above its normal tally. The greater Midwest from Ohio to Wisconsin is expected to endure 305 HDD, or eight more than normal.

Technical analysts aren't convinced that Tuesday's 15-cent rally will do any serious damage to the pervasive downtrend. "With natgas reclaiming the $2.805 low, the bulls have managed to revive the case for bottoming action after a near death experience," said Brian LaRose, a technical analyst with United ICAP. "Reviving and reestablishing are two very different things, though. To have us entertaining the case for a bottom forming, bulls still need to push natgas back above the $3.313-3.325-3.371-3.378-3.385 zone and shift the technicals in their favor."

In overnight Globex trading February crude oil fell 35 cents to $45.54/bbl and February RBOB gasoline eased a penny to $1.2906/gal.

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