January natural gas is set to open 10 cents higher Tuesday morning at $3.76 as traders brace for another onslaught of inventory-pulling cold expected to traverse deep into the Midwest. Overnight oil markets rose.
"Month-to-date, we have seen much below normal air dominate the North American climate," said consulting firm EnergyGPS in a Tuesday morning report to clients. "The already tight natural gas supply-demand balance has only managed to get tighter because of the gain in weather-adjusted residential/commercial demand. After setting an all-time high this past November, the Lower 48 natural gas inventory has dropped back to the five-year average. The current withdrawal pace will set a new record for the month of December.
"This past holiday weekend saw many warm records fall across the Midwest. Parts of the Ohio Valley saw daytime highs in the low 70s yesterday, grinding residential/commercial demand to a stop.These conditions will be short-lived as another round of much below normal air is set to drift down from Canada in the same manner as it did during the second week of December. “While the temperature averages do not look as cold as what was experienced last time, it will push storage withdrawals once again to the 200 Bcf mark.”
Expected cold notwithstanding, traders see a market that is out of alignment and perhaps ripe for a trading opportunity. "This market continues to scream higher as it attempts to appropriately discount another blast of Arctic air that will be entering the nation’s Midcontinent in force next week," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note. "With weekend updates favoring extension of this below normal temperature pattern out to about the first one-third of January, the price spike that began about a week ago is being continued. The February futures contract that acquires prompt month status on Wednesday has spiked into new high territory beyond $3.75 amidst significant strengthening in spread structure.
"But we will also note that the physical market is trading at a significant discount as a result of current mild temps in leaving open the possibility of a soft expiration that could see January futures shift back to a discount against February values. Overall, we are viewing this dramatic 40-50 cent price spike of the past week as mismatched against the updated temperature forecasts that we monitor. While another Arctic event is certainly headed across the nation’s midsection next week, deviations from normal thus far don’t appear as pronounced as the cold wave seen earlier this month.”
The National Weather Service (NWS) calculates a diminished year-end heating load. For the week ending Dec. 31, NWS forecasts New England will see 220 heating degree days (HDD) or 48 fewer than normal. The Mid-Atlantic is set for 195 HDD, or 54 fewer than its seasonal average, and the greater Midwest from Ohio to Wisconsin is anticipated to have 196 HDD, or 87 fewer than its normal tally.
In overnight Globex trading February crude oil rose 30 cents to $53.32/bbl and February RBOB gasoline added a half-cent to $1.6446/gal.