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Traders Mull Milder Weather, Longer-Term Bullish Factors; February Called 2 Cents Lower

February natural gas is set to open 2 cents lower Friday morning at $3.37 as traders incorporate milder weather into their forecasts but at the same time acknowledge bullish undercurrents. Overnight oil markets eased.

Forecasters see a longer-term pattern developing with cold in the West and warmth in the East. "[Friday's] 11-15 day period forecast is also warmer than yesterday's forecast over the eastern two-thirds but a bit colder over the West," said WSI Corp. in its Friday morning report to clients. CONUS GWHDDs are are down 6.3 for days 11-14 and are forecast to be 128.6 for the period. These are 26 below average!"

Near-term gas buyers Friday for power generation across the ERCOT footprint will likely see slim pickings from wind generation until the end of the weekend. "A sharp arctic cold front will sag southward and meander across the Panhandle and northern tier during the next couple days," WSI said. "This will lead to a sharp contrast of temperatures as readings in the 30s, 40s and 50s will bleed into western and the northern tier, including the Dallas metro, but the majority of Texas will remain unseasonably warm and humid with readings in the 60s, 70s to mid 80s.

"A northerly wind will lead to meager wind generation during the next two days, with output between 4 and 8 GW. A quick surge of south-southwest winds may lead to a spike of strong wind generation during Sunday with output as high as 11-13+ GW."

In spite of a tempered weather outlook, analysts see most risk to the upside. "Although current stock that approximates average levels might appear conducive toward a neutral trading stance, [Thursday's] larger than expected supply decline is suggesting subsurface shifts that could remain well entrenched across the balance of the winter," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning report to clients.

"Power demand appears stronger than expected while export demand also remains stout. And with gas production has yet to see major response to a seven-month uptrend in drilling rig counts, we feel that the market will be anxious to respond upward to any shifts in the weather views. Speculative shorts have been placed back on the defensive via this month's price bounce of more than 30 cents off of the Monday lows."

In overnight Globex trading February crude oil fell 38 cents to $52.636/bbl and February RBOB gasoline fell fractionally to $1.6086/gal.

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