February natural gas is set to open at $3.46, a stout 26 cents lower, Tuesday morning as weather models show a generally warmer outlook. Overnight oil markets surged.
According to MDA Weather Services, the data changed somewhat over the extended holiday weekend. "The forecast over the holiday weekend trended in the warmer direction, particularly from the West to the Midwest; although, the East Coast likewise sees warm changes late in the period," the firm said in its morning six- to 10-day outlook. "These adjustments are in response to a faster fading in cold as much belows in the eastern half early on give way to much aboves in the Plains and Midwest around mid-period and warmer leans in the East in the latter stages.
"By late period, the focus of troughing and associated cold are generally limited in coverage to central and western Canada and pressing into the Northwest U.S. and Northern Plains."
Traders see the sharp decline in prices as setting up a major buying opportunity. "[A]s was the case in December, this cold trend is now expected to prove brief," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. "With this week's sharp elevation in HDDs well discounted, the market will become more focused on next week's temperature expectations that appear capable of forcing additional price down draft.
"From a pure technical perspective, it now appears that nearby futures could easily work down to the $3.30 area prior to expected support. On such a decline, we will look to establish outright long positions depending on updated weather guidance. For, now we are suggesting bull spreads such as long April-short December 2017 on a cost average basis in today's trade."
Tom Saal, vice president at FCStone Latin America in Miami, in his work with Market Profile said to expect the market to test last week's value area at $3.805 to $3.718 before "eventually" testing $3.661 to $3.413. "Maybe" the market tests $3.181 to $3.085, he said.
In overnight Globex trading February crude oil rose $1.19 to $54.91/bbl and February RBOB gasoline added 2 cents to $1.6897/gal.