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Technical Support Looms, Traders Say; April Called A Penny Lower

April natural gas is set to open a penny lower Tuesday morning at $2.68 as weather models overnight continued to moderate and heating requirements are expected to be below normal. Overnight oil markets fell.

Weather data overnight turned milder once again. "[Tuesday's] six- to 10-day period forecast is colder across the coastal East early, followed by large warmer adjustments during the second half of the period over the eastern two-thirds," said WSI Corp. in its Tuesday morning report to clients. "CONUS GWHDDs are down 11.9 to 79.5 for the period.

"Forecast confidence is considered average. Models show fair agreement with the large-scale pattern, though there is some uncertainty with how much temperatures cool off late in the period over the East."

The National Weather Service (NWS) continues to forecast well below normal heating load. For the week ending March 4, NWS predicts that New England will endure 177 heating degree days (HDD) or 56 fewer than normal, and the Mid-Atlantic states of New York, New Jersey and Pennsylvania are expected to have 169 HDDs, or 50 fewer than average. The greater Midwest from Ohio to Wisconsin is expected to see 180 HDDs, or 53 short of its normal seasonal tally.

Analysts see the market grinding lower and eventually resting at $2.50. "We see the April futures ratcheting even lower to the pre-expiration March lows of $2.52 within a one-week time frame where we will anticipate longer-term support," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. "While the warm weather factor has been a definite bearish influence across this month of February, above normal temperature trends will begin to lose influence as the winter season winds down next month.

"Non-weather items such as power demand, import/export activity, production, nuke downtime, etc., will gradually be developing in the process of likely driving a base of support through the shoulder period. We feel that this support will be developing at around the $2.50 area across much of next month. However, the possibility of a significant price spike of much more than 20 cents is being sharply reduced as the storage surplus continues to increase in very large weekly chunks. As the surplus increases, the 2017 carrying charges will remain vulnerable to expansion into new wide territory with such a development encouraging additional production given the benefits of huge price premiums out to next winter with which to establish short hedges."

In overnight Globex trading April crude oil fell 36 cents to $53.69/bbl and April RBOB gasoline lost a penny to $1.7283/gal.

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