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Traders Mull Forecast Cold; Expiring January Seen Down A Nickel

The expiring January natural gas futures contract is set to open 5 cents lower Wednesday morning at $3.71 as traders tinker with the timing of anticipated market-moving cold next week. Overnight oil markets were mixed.

Weather models overnight continued to be on track for a surge of cold air next week from west to east, but timing and intensity continue to be an issue. "Trends in [the six- to 10-day] period were in the colder direction from the West to Texas, while changes were mixed and detailed from the Midwest to the East," said MDA Weather Services in its morning report to clients. "This period continues to represent a transitioning in the pattern, when ridging over Alaska and the northern Atlantic enhance a cold air flow into North America.

"The cold will start out focused in the Northwest and northern Rockies before pressing toward the Midwest at mid-period and reaching the East Coast late. Out ahead of this cold push, however, temperatures will be broadly warmer than normal along the East Coast and in the South in the early half. The eastern third carries the highest risk as models struggle in the timing of cold air's arrival and the intensity of warmth that precedes it; models are generally colder in the West."

That surge of cold air into the West may not have the impact on demand, one would think, as hydro supplies have taken power generation market share from natural gas. "Out west, even though temps have been running slightly cooler than normal in both northern and southern California, gas has lost share of the power stack as the current weather system has featured decent amounts of precipitation for instant hydro (also building Sierra and Cascade snowpack for spring) and surges of wind," said industry consultant Genscape in a morning note. "In addition, CAISO power imports have been steadily rising as hydro and wind generation in BPA has also been surging.”

When the cold finally hits eastern markets a multitude of factors will be in play. "New England demand will actually scale back slightly through the end of the week with moderately warming temperatures relative to earlier this week," Genscape said. However, the market is forecast to get hit with heavy snow and wind, creating risk that our temperature-driven forecast may come in too high as those conditions may destroy/inhibit demand.

"The departure of this moisture-laden system will be trailed by a block of cold air that will push as far south as the Carolinas, but its impact on demand will be partly offset by the double whammy of the New Year holiday coming during a weekend."

In overnight Globex trading February crude oil fell 20 cents to  $53.70/bbl and February RBOB gasoline gained a bit to $1.6625/gal.

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