January natural gas is set to open a penny lower Wednesday morning at $3.46 as traders see little change in the near-term weather outlook and the technical picture turns less supportive. Overnight oil markets fell.

Overnight weather models inched colder and forecast less of a late-month warmup. "Net national changes were small to the upside as we shifted a bit stronger with the Midcontinent cold outbreak for late one- to five-day and early six- to 10-day range from Chicago to Texas," said Matt Rogers, president of Commodity Weather Group in a morning note to clients. "We have lows Sunday-Monday in Chicago getting down to 12-13 below zero, which is closer to record levels for these December dates. Texas aims for the coldest weather so far this season with lows getting close to the teens in Dallas.

"The six- to 10-day looks warmer thanks to forecast progression today as we move away from the third big cold outbreak. The models are really struggling with the incoming late month warm-up as both the European and American guidance are not as strong with it in the 11- to 15-day compared to yesterday morning."

Tim Evans of Citi Futures Perspective said, "There's room for the downward price correction to continue, with the market still trading above its five-year average level at a time when storage is still above a corresponding five-year average inventory level, and we note that a 50% retracement of the November-December rally in January futures would target $3.25.

At the same time, however, we note that the temperature forecast remains cool enough to draw down storage at something more than the five-year average rate.”

Evans forecasts a 124 Bcf draw for Thursday's EIA report and said his storage outlook calls for the five-year storage surplus currently at 254 Bcf to become a 12 Bcf deficit by Dec. 30. "This swing from surplus to deficit would confirm that the market is becoming physically tighter on a seasonably adjusted basis, a fundamental support for prices over the intermediate term.

"While this normally translates into rising prices, we can also think of it as reducing the downside price risk. Prices might still decline in the short run with this firming support; they would just fall less than they might have with an expanding storage surplus."

In overnight Globex trading January crude oil fell $1.00 to  $51.98/bbl and January RBOB gasoline shed 3 cents to $1.5214/gal.