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Traders Eyeing $2 Futures, Yet February Seen 3 Cents Higher

February natural gas is set to open 3 cents higher Friday morning at $2.41as weather forecasts calling for a return of El Nino-like warmth for the last half of January become less certain. Overnight oil markets rose.

Weather forecasters are not convinced of the return of El-Nino-like weather patterns over the last half of January. Natgasweather.com in a Thursday midday update said, "After the Midwest and eastern U.S. warms back above normal through Saturday, a frigid polar blast will gradually begin pushing through the central U.S., and eventually into the East early Monday. A second reinforcing shot of polar air is expected Tuesday, with the track very important and likely to shift slightly before arriving. The combination of the two will drive around five days of strong heating demand."

The forecaster also said it is expecting a brief milder break late next week or the following weekend as the cold pool over Canada reorganizes around Jan. 16-19 and a strong Pacific jet stream approaches the West Coast. However, this could play out to be be a trap for model followers. The Pacific jet very well could ease or shift slightly, providing opportunity for cold Canadian air to surge right back into the north-central U.S. Therefore, coming weather patterns are going to be critical for the last 10 days of January to see if a tease in milder temperatures around Jan. 16-19 turns into a trap with subfreezing temperatures returning shortly after.  

A top trader is looking to position himself to play the downside. "[A]lthough temperature moderation is being forecasted beyond next week, there are no significant warming trends on the horizon that appear sufficient to spur much selling interest. While an argument can be made that the current supply surplus of 465 Bcf is enough to cushion occasional up spike in HDDs, this heavy usage cycle is not far enough advanced to diminish the impact of the weather factor," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients Thursday.

"The market is also looking ahead to some much larger stock draws that could total more than 350 Bcf during the next couple of weeks combined. From a technical perspective, today's advance above our expected resistance at $2.38 would appear to set this market up for further gains to the $2.45 area. But we have shifted back into a bearish posture per [Thursday's] advance to above $2.38, and we would suggest holding any short positions with protection above the $2.50 level. Ultimate downside possibilities still exist to around the $2 mark but are unlikely until next month."

In overnight Globex trading February crude oil managed to recover somewhat, gaining 61 cents to $33.88/bbl and February RBOB gasoline rose a penny to $1.1536/gal.

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