February natural gas is set to open 2 cents higher Wednesday morning at $2.11 as weather forecasts show little change. Overnight oil markets fell.

Once a major winter storm hits the Midwest and East over the weekend weather models then calculate a moderating pattern for next week, although the models are not in total agreement. In its morning report Commodity Weather Group (CWG) reported that “the models continue to converge on a significant winter storm for the Mid-Atlantic late on Friday into the weekend that could trigger some demand destruction associated with snow/wind-related power outages. Extra snow cover (may be 1-2 feet in Washington DC area) could enhance cold in the short-range for the East Coast cities, but we still see a broader moderating pattern for the six- to 10-day that focuses the warmest anomalies over the Midwest area and starting to get toward the Northeast too.”

In the 11- to 15-day period CWG shows a warmer pattern than Tuesday with a broad ridge of above normal temperatures centered over Illinois, Indiana, Ohio,and Michigan. “The models are still mixed for next week with debates on some transient weather systems and a faster-moving, weaker cool to cold trough. The European ensemble then shows a fairly warm pattern dominating the 11-15 day.”

Analysts at Tudor Pickering Holt see continued contraction in drilling activity and subsequent falling production. “Dry gas production declines in the US are set to accelerate as a cashflow crunch combined with ever expanding leverage has all but shut down activity. Over the last few weeks, our rig data shows that activity in the Haynesville, Fayetteville, Barnett, Pinedale and Piceance is down to around 25-30 rigs from a peak in 2015 of ~95.

“Further, recent conversations with larger operators in these basins suggest activity may fall closer to 20 rigs in aggregate vs. TPH macro model of 36. These basins represent approximately 17.5Bcfe/d of aggregate supply with an estimated PDP [Proved Developed Producing] decline of 2-3Bcfe/d. If assuming rigs are high-graded we may only see a supply wedge of 1-1.5Bcfe/d (50-75MMcfe/d per rig per year) creating a supply decline of 1-2Bcfe/d (current macro model assumes ~1Bcfe/d),” the company said in a report to clients.

In overnight Globex trading the expiring February crude oil fell 84 cents to $27.62/bbl and February RBOB gasoline dropped a penny to $1.0149/gallon.