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Forecast Cold Proves Ephemeral; Expiring February Contract Seen 7 Cents Lower

The expiring February natural gas contract is set to open 7 cents lower Friday morning at $3.31 as forecast cold is expected to be less intense than previously thought. Overnight oil markets sagged.

Trader skepticism of recent market strength has been proven correct with the overnight price retreat.

"The rally appeared to be discounting another arctic event that has failed to acquire strong consensus within the weather models," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning report to clients. "While some colder trends are still expected later next week, deviations from normal don't appear sizable nor sufficiently broad-based to suggest a major storage decline. [Thursday's] 119 Bcf drop in supply again exceeded our expectation by a significant margin, and it appears that some structural shifts are developing to drive storage declines beyond those that might be implied by HDDs.

"Power demand remains stout; export activity is still strong, and production continues to show limited response to the recent upswing in the rig counts. While storage is apt to establish a surplus of at least 60-70 Bcf with next week's EIA report, this overhang could prove short lived, and the aforementioned structural changes strongly suggest a significant deficit situation when supply peaks seasonally in a couple of months."

Gas buyers for power generation across MISO over the weekend can expect to have to deal with significant cold, but also ample wind generation to offset gas purchases. "A brisk and persistent northwest wind beneath a deep upper-level trough will support seasonably cold and breezy conditions across the power pool through the weekend," said WSI Corp. in its Friday morning report to clients.

"Max temps will range in the 20s, 30s to low 40s across the Midwest along with minimums in the teens and 20s. The cold flow and a few embedded disturbances will support a chance for a few snow showers and lake-effect snow.

"A persistent northwest wind will lead to elevated wind generation through Sunday morning. Output is forecast to peak today as high as 9-11 GW. After a brief lull, a southwest-to-northwest wind associated with the Clipper will bolster output early next week."

In overnight Globex trading March crude oil fell 25 cents to  $53.53/bbl and March RBOB gasoline gave up a penny to $1.5589/gal.

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