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Traders Mull Market Strength, Overbought Conditions; February Called 9 Cents Higher

February natural gas is expected to open 9 cents higher Tuesday morning at $3.33 as weather models call for cooling in the more deferred time periods amid hints of cold Canadian air working south. Overnight oil markets rose.

"[Tuesday's] forecast is colder than yesterday's forecast across the northern and eastern U.S., as well as Canada," said WSI Corp. in its Tuesday morning 11-to 15-day forecast. "The southern tier and West are warmer. CONUS GWHDDs are up 2.3 for days 11-14 and are now forecast to be 132.5 for the period.

"Other than the southern tier, there is a colder risk across the central U.S., Rockies and the Northwest, as well as much of Canada as arctic air may build and attempt to bleed southward."

Traders see the March contract at risk once February goes off the board.

"This market has been able to sustain yesterday's strong rebound off of the $3.15 area with some assistance from colder weather models that are beginning to suggest an arctic event that could develop beyond next week," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients.

That market strength will be contested by "a string of smaller than normal storage withdrawals that could be issued within the next three weekly EIA releases. With storage levels likely to swing back to a small surplus against five-year averages and with the market approaching the latter stage of the heavy usage cycle, a return to last month's highs would appear to be off the table short of a major arctic event that could be sustained for more than a week."

Ritterbusch notes that February and March are trading about even, but March “...will likely be more receptive to following cash pricing lower rather than higher next month as usual seasonal price premiums provide a cushion against any usage spikes during February."

For the moment, money managers don't seem to be buying into March weakness. In the Jan. 17 Commitments of  Traders report "Money managers bought 25,789 contracts of natural gas in the week ended Jan. 17, with the group's net long position the largest since June 2014," said Tim Evans of Citi Futures Perspective in a report to clients following the Friday release of the data.

"While not necessarily an extreme within the established five-year range, we view the market as at least somewhat overbought."

In overnight Globex trading March crude oil added 42 cents to $53.17/ bbl and March RBOB gasoline rose 2 cents to $1.6166/gal.

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