February natural gas is expected to open 4 cents lower Friday morning at $3.76 as traders moderate their expectations of further weather-driven price gains. Overnight oil markets weakened.

Analysts see a market overdone to the upside vis-a-vis current weather forecasts but at the same time acknowledge potential structural market changes. “This market is pulling back this morning as it appears that the dramatic price spike since early last week has been overcooked within the context of cold weather forecasts that are beginning to see some moderation beyond next week,” said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients.

“While Arctic air will be moving across virtually the entirety of the U.S. next week in driving another huge storage withdrawal, this factor has also been priced in with the market beginning to shift focus to some expected moderation within the eight-14 day time frame. However, we are viewing yesterday’s storage withdrawal that exceeded our expectation by a whopping 36 Bcf as a bullish consideration that will be limiting downside price possibilities.

“[T]he dynamic of a decisive shift from a long-standing supply surplus against average levels that persisted for more than 1.5 years to a sizable deficit is a major supportive development that has yet to be fully priced. The approximate 80 Bcf supply deficit per yesterday’s EIA report is apt to expand appreciably next month into the 200-300 Bcf zone in increasing this market’s sensitivity to occasional and inevitable cold spells such as the one that will be developing next week.”

Gas buyers for power generation across the MISO footprint this weekend will have to deal with seasonally warm conditions followed by snow with little in the way of wind generation. “High pressure will support mostly fair conditions and highly anomalous warmth through the weekend,” said WSI Corp. in its Friday morning report to clients. “Daytime highs are expected to rise into the 20s, 30s, and 40s. A deep upper-level disturbance is forecast to dig across the area early next week, [and] this should drive snows across the North early next week, and severe thunderstorms across the South this weekend. Total precipitation over the South will be near 1-2 inches (rain), with 1-2 inches of snow across the North.

“Reduced flow will impede wind gen [Friday] into the weekend, where output should range between 3-6 GW. Flow is expected to rebound early next week, where output should rise back to near 10 GW.”

In overnight Globex trading February crude oil fell 7 cents to $53.70/bbl and February RBOB gasoline dropped a penny to $1.6666/gal.