January natural gas was trading nearly a dime lower at $3.382 just before 9 a.m. Wednesday as production returned close to highs, imports rose and power burns were some of the lowest of the season.
Slightly milder weather on tap through the next couple of weeks also likely played a hand in the post-Christmas Day sell-off, although the latest weather data was only slightly more bearish and therefore the dramatic slide “appears a bit of an overreaction in an impatient market that seems to be eagerly awaiting two-sigma cold,” Bespoke Weather Services said.
Such intense cold will take time to build and get delivered, and the firm had not been expecting any real significant frigid temperatures until at least mid-January in a more gradual move toward a colder pattern through mid-month. These loose balances, however, necessitate more cold risks to sustain prices, it said.
The milder near-term weather was attributed to strengthened downslope winds off the Rockies driving the central United States warmer in the second half of the six- to 10-day forecast, according to Radiant Solutions. Additionally, the early part of that forecast was warmer along the East Coast out ahead of low pressure, while stronger ridging along the West Coast led to warmer changes there.
“The period is one of variability” as a mix of above-normal and below-normal temperatures were seen throughout the forecast, the forecaster said.
Meanwhile, warmer changes were made to the 11- to 15-day outlook as well, but confidence remains low on model volatility and disagreement, according to Radiant. The Madden Julian Oscillation was given consideration as it tracks through phase 7 and into phase 8; and while the Global Forecasting System model is considerably stronger and slower, both models are in agreement for an El Niño atmospheric background state, the firm said.
“The forecast takes on those themes associated with the positive Pacific North American as a result, with below-normal temperatures in parts of the South and above-normal readings along the West Coast and far northern Rockies,” Radiant said.
Given the expected return of cold later in January, Bespoke viewed the sharp sell-off Wednesday morning “as overdone in this low liquidity environment into options expiration, with prices under $3.50 undervalued given building long-range cold risks and any lingering downside short-term,” chief meteorologist Jacob Meisel said.
Crude oil February futures were trading 36 cents higher at $42.89/bbl, and RBOB gasoline January futures were trading fractionally higher at $1.25/gal.