February natural gas is set to open 3 cents lower Monday morning at $3.17 as weather forecasts can only hint at a return of seasonal cold to eastern energy markets. Overnight oil markets slumped.
Overnight weather models continued their warm bias but hint at near-term Alaska ridging, which could usher in more seasonal (colder) temperatures in the East. "Forecast trends over the weekend were in the warmer direction and focused in the central U.S. late in the period; however, this time frame [six- to 10-day] remains one of transition as below-normal temperatures span along the southern tier," said MDA Weather Services in a Monday morning report to clients. This coverage of ‘belows’ is expected to linger through late period in the Southeast, while being transient in nature and giving way to warmer anomalies late in Texas.
"The variability versus that of the near term is related to a buildup in ridging near Alaska, a feature which will allow for nearer-term warmth to quickly break down and result in a seasonal period for the East. Warmer risks are seen in Texas, especially late and based on model biases. The eastern third could be warmer as well, with this likewise related to model biases and a warmer Euro [Ensemble] projection."
The Desk in its Early View survey of the week's storage report shows expectations to be far below historical norms. From a sample of 12 traders and analysts the average was 112 Bcf, well below last year's 202 Bcf and a five-year average of 176 Bcf.
Risk managers are keying on weather for their price forecasts. "If we see colder than normal temperatures for the balance of the winter, we could see the gas market retest the $4," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.
"If temperatures start to trend warmer, we could very well see gas back at $3 by the end of the heating season. Looking forward into mid-2017-early 2018, we feel the gas market is going to have a difficult time holding above the mid $3 range as takeaway capacity out of the Marcellus and Utica expands."
DeVooght currently advises trading accounts to stay short February futures from $3.70; end-users should stand aside.
Producers and physical market longs should the remainder of an August 2016-July 2017 $2.70 put strip offset by the sale of August 2016-July 2017 $3.50 calls. He also recommends holding a $2.75 put and selling a $3.75 call paying 7 cents.
In overnight Globex trading March crude oil fell 71 cents to $52.51/bbl and March RBOB gasoline gave up a penny to $1.5793/gal.