January natural gas was set to open about a penny lower Tuesday at around $2.735, with the market struggling to build overnight on Monday's 13.3-cent surge.
A sustained blast of frigid temperatures forecast to arrive over the upcoming holiday weekend supported Monday's move higher and continued to hold the market’s attention.
"Weather guidance overnight lost some of the bullish risk it picked up over the weekend and started the week with, leading us to see it as a bit less supportive Tuesday," Bespoke Weather Services said in a morning note to clients. "European guidance lost a few gas-weighted degree days (GWDD) overnight by showing cold not quite as intense as previously expected, while the long-range pattern on" the Global Ensemble Forecast System "showed an upstream pattern change that would likely bring warmth by the second week in January."
The warmer shifts were "small and preliminary" and could be reversed in afternoon guidance, Bespoke said. "A move above $2.75 resistance would increase our desire for long exposure, especially on afternoon guidance that reverted back to the colder risks we have been seeing, but this market still appears to have heavy short interest...we are worried that losing any number of GWDDs overnight could lead to a $2.65 support test."
ICAP Technical Analysis analyst Brian LaRose said after the close Monday that "Friday's settlement marked the first weekly close beneath the 100-week simple moving average (SMA) since early August 2016. The 100-week SMA cuts at $2.813 this week.
"It will be interesting to see whether or not the bulls can reclaim this level," LaRose said. "If they can, we may be forced to entertain a short-term recovery. If they cannot, I suspect we will be looking at a test of $2.553-2.521 before the Christmas holiday arrives."
INTL FCStone Financial Inc.’s Tom Saal, senior vice president, attributed Monday's rally to short-covering after some significant selling over the past two weeks.
"You're bound to get a rally after a bunch of days of selling," Saal said. The move higher "was probably weather-stimulated, but it was probably more technical in nature. People who were short decided to buy back" Monday, leading to a knock-on effect in the market.
January crude oil was set to open about 24 cents higher at around $57.40/bbl, while January RBOB gasoline was up about a penny at $1.6828/gal.