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March Futures Highs Seen in Place; February Called Down 7 Cents

February natural gas is expected to open 7 cents lower Friday morning at $3.30 as traders admit any near-term advance will require additional cold weather, which for the moment is not forthcoming. Overnight oil markets rose.

In spite of Thursday's bullish Energy Information Administration storage report suggesting an overall tightening in the supply-demand balance, traders are focused on near-term weather.

"This market's attempts to piece together a meaningful price advance continue to be thwarted by a lack of bullish weather guidance," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning report to clients. "Updates to the one- to two-week temperature forecasts are still being featured by above normal expectations within key consuming regions with extension now out to Feb. 3rd. Although below-normal temperatures are expected within the western half of the country and much of the South, the northeast quadrant has yet to show a potential return of arctic air that will be required to jump start another price advance.

"[T]he further that this winter wears on, the less the price impact when another cold spell does show up on the radar. While some occasional bullish storage reports can briefly spike values, the trade of the past 24 hours is strongly suggesting that some cold weather will be required to spark a significant price rally. As is the case in the petroleum, we have been forced to lower our price expectation and we believe that our $3.55 upside target in March futures may well represent the high for that particular contract during the next five to six weeks."

Gas buyers for power generation across PJM Interconnection over the weekend won't have much in the way of wind generation to work with if the forecast of WSI Corp. is correct. "Much above average temperatures and below average heating demand are expected during the forecast period [Friday through Tuesday]. "A weak frontal system will continue to spread a dissipating swath of rain/drizzle across the power pool today. Max temps will range in the mid 40s, 50s to near 60 in spots. Mostly cloudy skies and a slight chance of a shower will linger into Saturday. It will be unseasonably warm with max temps in the upper 40s, 50s to low 60s,” the forecaster said.

"A robust storm system will develop over the southern U.S. this weekend and track a track north up the East Coast early next week. The exact track and details still need to be resolved, but this will likely bring primarily rain and gusty winds into the region during Sunday into early Tuesday. Temperatures will vary in the 40s and 50s.

"Relatively light wind generation is expected through Saturday. The expected storm system will likely bolster wind gen during Sunday into the Monday with output in excess of 3 GW.”

In overnight Globex trading expiring February crude oil gained 81 cents to  $52.18/bbl and February RBOB gasoline rose 3 cents to $1.5659/gal.

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