Daily GPI / Markets

Weather Models Flip Back to Cold; January Called 14 Cents Higher

January natural gas is expected to open 14 cents higher Wednesday morning at $3.40 as weather forecasters see Alaska ridging developing by the end of the month. Overnight oil markets rose.

Weather models changed overnight and indicated conditions suggestive of colder temperatures around New Year's. "In the past 24 hours, both the American and European model guidance have shifted back toward more high-pressure ridging around Alaska that sets the stage for a shift back colder again by about the New Year's weekend with one cold push and then maybe more later in the 11-15 day," said Matt Rogers, president of Commodity Weather Group, in a morning report. "Today's changes were a bit cooler in the East and colder West in the short term, slightly less warm for the Midwest to South in the six-10 day, and then warmer South to West in the 11-15 day, while Midwest to East shift colder.”

Rogers expects forecasts to be more challenging going forward, in part due to the presence of a weak La Nina. "[W]e must anticipate a fairly volatile winter situation when both warm and cold periods have shorter lifespans than what is typical. This challenges forecast models and forecasters as the standard deviation is higher, [and] about two-thirds of these types of winters tend to have longer cold than warm periods."

The recent forecasts of milder weather through the end of the year have not dissuaded analysts from projecting an end to the five-year storage surplus. "We still see enough heating demand to still power a swing from a year-on-five-year storage surplus to a deficit in the weeks ahead," said Tim Evans of Citi Futures Perspective in closing comments.

Evans is expecting a pull of 198 Bcf in Thursday's storage report and thinks "the year-on-five-year surplus that was 186 Bcf on Dec. 9 will swing to deficit of 39 Bcf by Dec. 30. “This swing from surplus to deficit still confirms that the market is becoming physically tighter on seasonally adjusted basis, a fundamental support for prices over the near term," he said.

The Desk's Early View storage survey for the week ending Dec. 16 showed an average of 204 Bcf from a sample of 10 traders. Last year, 33 Bcf was withdrawn and the five-year average is for a 101 Bcf pull.

In overnight Globex trading February crude oil rose 15 cents to  $53.45/bbl and February RBOB gasoline gained fractionally to $1.6128/gal.

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