With the demand outlook dented by overnight warming from the major weather models, natural gas futures pulled back early Wednesday. At around 8:30 a.m. ET, the January Nymex contract was off 5.0 cents to $2.391/MMBtu.
Weather models, particularly the American model, have offered up a “wild ride” in terms of recent shifts in temperature trends, according to Bespoke Weather Services.
The American dataset “went tons colder at midday yesterday only to completely erase all of that change overnight,” the forecaster said. “It is very difficult to trust any model that jumps around” by 20-30 gas-weighted degree days over a 12-hour period. On the other hand, the European model “has been much more stable and remains warmer, also hinting at what would be a warmer 16-20 day pattern as well, thanks to a trough over Alaska” and the absence of any North Atlantic Oscillation blocking.
Bespoke said its expectations lean toward the European outlook, “but we would not be surprised to see models continue to jump around. We do still favor risks for cold to return late month, but if our forecast path is correct, we have a fair amount of milder weather first.”
Maxar’s Weather Desk similarly noted disagreement between the colder American and warmer European for the Dec. 14-18 time frame. Maxar said its forecast “takes a middle ground approach, with changes being warmer in the West and colder around the Great Lakes. With confidence being low, the forecast is reluctant to diverge more than a few degrees from normal in the period composite.”
Meanwhile, for the period starting Monday and extending through Dec. 13, Maxar said the overall forecast themes Wednesday carried over from the previous outlook.
“Much above normal temperatures are in the South and East at the start of the period, preceding low pressure tracking eastward,” the forecaster said. “A colder air mass is left in the wake of the storm system; and with a polar connection, a round of much and strong below normal temperatures is first in the Midwest around mid-period and reaching the East in the second half.”
Demand losses from both the American and European models set the stage for futures to pull back early Wednesday, and prices could slide further later this week, according to analysts at EBW Analytics Group.
“Longer term, though, there are signs of a major stratospheric warming event,” the EBW analysts said. “This could lead to a return of colder weather in late December, preventing natural gas from falling below last week’s lows.”
January crude oil futures were up $1 to $57.10/bbl at around 8:30 a.m. ET, while January RBOB gasoline was trading about 3.1 cents higher at $1.5935/gal.