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How Low Can It Go With No Weather Help? March Called Down 2 Cents

March natural gas is expected to open 2 cents lower Monday morning at $1.78 as traders see falling demand prompting still lower prices for March. Overnight oil markets rallied.

Although spot futures appear headed toward a test of the $1.684 December lows, some analysts are not predicting a bottom but just say prices are headed still lower.

"Although U.S. natural gas prices have by no means had a strong winter, the hope of an unexpected freeze had helped prop prices up somewhat," said Nicholas Potter, a commodities analyst at Barclay's. "But as the end of winter is in sight, expectations of wintry weather fixing the market oversupply have evaporated. With storage well over the five-year average and residential/commercial demand set to fall as we hit March, the market should brace for prices to move lower in the coming weeks.

"With peak heating demand coming to an end, prices are likely to continue to come under pressure...[O]ver the past five years residential/commercial demand has typically peaked in January (with the exception of 2015 when it peaked in February) and has fallen an average of 33% in March from the January highs. At the moment, weather forecasts are pointing to March being slightly warmer than the 10-year average. Given the market's expectation of warm weather, there is a risk that if March forecasts move colder, you could see the market move higher. We have seen this happen the past two months as the January and February forecasts moved colder. In both cases these rallies were fairly short-lived, however."

Market technicians, however, looking at seasonal analysis point to 15-year cycles as offering guidance to a market low. The first test would be a hold of the December $1.684 lows, but if that fails, "From the $1.684 low bulls needed a decisive break above $2.820 to have any case," said Walter Zimmermann, vice president at United ICAP, in a weekly report to clients. In the short term, Zimmermann cites $1.80 as a support level but said, "On a decisive break below $1.800 the next step down is $1.320 with $1.000 the next step down below that"

Others aren't so enamored of cycle analysis and point to reports on open interest and the activity of managed money. "To me, the last Commitments of Traders report shows the funds are not completely sold on whether this is a bottom or not," said Tom Saal, vice president at FCStone Latin America LLC. "That's probably the key. In order for the market to continue lower you are going to need aggressive selling by funds, new shorts.

"The last Commitment of Traders report showed managed money is doing more oscillation at these prices than actually adding to short positions. They are in and out and in and out. They are not showing a trend of ever increasing shorts. Their behavior shows that they are not completely sold on the trend continuing. They are not convinced the market is going a lot lower. Historically, the market does not spend a lot of time below $2. I think we are near the lows."

In its weekend automated six- to 10-day forecast, the National Weather Service showed little change from Friday, with pervasive above normal temperatures residing in the West and east of the Mississippi below normal temperatures in play.

In overnight Globex trading the expiring March crude oil added $1.71 to $31.35/bbl and March RBOB gasoline rose 4 cents to $1.0015/gal.

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