February natural gas futures declined by a few more pennies on Monday as traders -- after a week of fluctuating forecasts -- were still attempting to get a better handle on what the weather picture will be like in the coming weeks. The prompt-month contract traded between $4.322 and $4.450 before closing the regular session at $4.399, down 2.3 cents from last week.
Tradition Energy's Addison Armstrong blamed last week's decline off the high to weak fundamentals. "Natural gas futures edged 1.2 cents lower to a new one-week closing price low at $4.422 to end last week's trading, as moderating weather forecasts for the tail end of the month and the market's weak underlying fundamental picture depressed prices," he said. "Prices ranged from a high at $4.450 down to a five-day low at $4.327 as the market retreated 8% after reaching a five-month high near $4.700 on Jan. 3."
Looking ahead, Armstorng said it still appears that much of the country is in for some below-normal temperatures, yet some uncertainties could alter the outlook. "Weather forecasts continue to indicate below- to well below-normal temperatures across most of the eastern half of the country in the next 10 days, followed by normal to below-normal temps in the 11-15 day forecast period," he said. "There is a chance that temperatures could be warmer in the Midwest and Northeast if conditions develop correctly, but the 11-15 day forecast remains uncertain as of this morning and it will need to be watched in the coming days for a better indication."
Near-term weather models are showing a somewhat greater incursion of cold air into the Midwest and Ohio Valley in the six- to 10-day period. MDA EarthSat predicts below- to much below-normal temperatures in a ridge bounded by western Montana, North Texas, North Carolina and western New York. "The forecast has turned a bit warmer again across the Western U.S., where more 'aboves' are likely early," the forecaster said. "The coldest conditions are likely across the northern Plains to western Midwest -- an area most models are in fairly good agreement on.
"Model agreement in the East is much lower as models are showing the potential for a couple of storm systems that are complicating things. The current forecast shows warming in the Northeast late, but a more suppressed storm track could keep the area colder. The South should warm briefly around mid-period before turning colder again late."
Risk managers see the market as setting up for forward sales. "The gas market spiked to a five-month high on the first trading day of the new year. But as we have seen over the past few months, new highs are followed by a round of profit-taking, which is exactly what happened this past week," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.
"The weekly storage withdrawal was slightly lower than anticipated and gave the market a little support," he added. "The gas market continues to be pressured by an overhang of physical production. We do feel current price levels already reflect a lot of bearish news. It has been our thought that we could see a rally into the high-$4, low-$5 level. On a trade basis if we hit these levels, we will do some forward sales. The recent rallies are getting closer to our target levels but have not reached our sell levels. At this time we are not willing to lower our target levels."
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