February natural gas is set to open 12 cents higher Tuesday morning at $3.22 as traders see limited downside risk and weather models hold steady. Overnight oil markets rose.

Medium-term weather models showed a balanced mix of colder and warmer events, according to forecasters. WSI Corp. in its Tuesday morning 11- to 15-day outlook said, “[Tuesday’s] 11-15 day period forecast is warmer during the start of the period but colder by day 14. These changes more or less offset each other, so CONUS GWHDDs are down 0.5 to 109.2 for the period. These are 47.2 below average!”

It’s not likely that the forecast will get much more bearish. “The forecast is already extremely warm so there [are] minimal warmer risks. The Southwest and central U.S. have cooler risks late,” WSI said.

Inasmuch as weather forecasts have been so volatile, traders suspect that funds and managed accounts will be willing to press the short side of the market.

“This market is seeing a significant overnight price bounce that follows a sizable weather-induced decline of about 75 cents, or some 20% during the past two weeks,” said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. “This recent price downswing has furthered a string of some half-dozen major short-term trends in both directions as this heavy usage cycle has seen unusual volatility within the weather patterns from unusually hot to abnormally cold on several occasions.

“With storage levels at around five-year averages, the market is able to respond to occasional updates advising above normal trends. But on the other hand, the bulls can cite the erasure of a longstanding supply surplus and production that has been running well below a year ago. Add in strong export activity and continued coal-to-gas displacement and a case can easily be built for a sustainable supply deficit as this winter proceeds.

“Given the fact that these outlooks can change dramatically virtually overnight, we feel that the money managers will be reluctant to press the short side assertively following the recent price plunge. In other words, any surprises on the weather front going forward are more apt to be bullish than bearish, in our opinion. With this in mind, we have initiated a buy recommendation in March futures at the $3.13 level or below after having been pushed to the sidelines out of our April-December 2017 bull spread in yesterday’s trade.”

In overnight Globex trading February crude oil rose 21 cents to $52.17/bbl and February RBOB gasoline rose a penny to $1.5843/gal.