February natural gas futures were trading close to even shortly before 9 a.m. ET Tuesday, down  about 0.2 cents to $3.589/MMBtu, with overnight forecasts easing demand expectations slightly following Monday’s cold-driven rally.

Forecasters reported milder trends in the overnight weather data that appeared to inspire some selling in the early morning hours Tuesday.

EBW Analytics Group CEO Andy Weissman attributed the “small pullback in electronic trading” Tuesday to forecasts showing a “modest dip in projected demand” for the Week 2 outlook period.

“The more important issue, however, is potential weather in February,” Weissman said. “Signs continue to increase that early February weather could be frigid, with brutally cold weather potentially lasting for several weeks. It is not yet clear if weather conditions will be cold enough to cause widespread freeze-offs or steep price spikes in the East.

“If this occurs, however, prices for the February and March natural gas contracts could jump higher.”

NatGasWeather viewed the overnight weather data as mixed. The Global Forecast System (GFS), the coldest of the datasets, trended even colder, while the European model eased back on heating demand expectations.

“The European model is still quite cold, just not as impressively so this run,” the forecaster said. “Most importantly, intimidating cold blasts are still expected to sweep across the northern, central and eastern U.S.” from Sunday through Jan. 29, “including at times deep into the southern U.S. We see strong odds of frigid cold pouring out of Canada into the U.S. well into early February.”

This upcoming cold pattern should “rapidly increase” storage deficits and potentially cause wellhead freeze-offs to reduce production, according to NatGasWeather.

“We expect bullish weather sentiment will remain until the polar cold pool retreats into Northern Canada, which will take some time,” the forecaster said. “Finally, we expect crazy volatility to return” after Monday’s rally, with 20 cent daily price swings possible as “markets struggle to determine fair value.”

The significant shift to colder expectations over the weekend may have come at a good time for the bulls. As of late last week, time was running out for winter cold to shift the outlook for end-March inventories, which had been on a trajectory for a 1.5 Tcf carryout, according to Energy Aspects.

“A cold event of considerable duration and deviation from normal will be necessary to substantially move the needle on the February and March contracts, but the window of time for this to occur is closing, especially with market expectations coalescing near a 1.5 Tcf carryout,” the firm said.

February crude oil futures were trading 77 cents higher at $51.28/bbl shortly before 9 a.m. ET, while February RBOB gasoline was up about 2.4 cents to $1.3873/gal.