February natural gas futures fell Tuesday as traders factored in a moderate weakening of forecasts calling for near-term cold. Present thinking is that this week's inventory report is likely to show a huge withdrawal, upwards of 250 Bcf, and any moderation in the weather outlook was thus seen as a reason to temper bullishness. At the close February futures shed 5.5 cents to $4.425 and March eased 4.4 cents to $4.446. February crude oil lost 16 cents to $91.38/bbl.

Commodity Weather Group in its six- to 10-day outlook predicts above-normal temperatures for California and the Pacific Northwest as well as for Colorado and the Northern Plains. Below-normal temperatures are expected east of a sinuous line extending from Maine to Kentucky to West Texas. Earlier forecasts showed less in the way of above-normal temperatures and a broader expanse of below-normal readings.

"A moderate to strong cold shot still aims for the Midwest, South and East in the one- to five-day range. After this week, the big cold air connection to northwest Canada starts to deteriorate, but the prevailing pattern type of a warm ridge axis in Western Canada should continue to favor a seasonal to colder leaning for the East and South through the next two weeks," said Matt Rogers, president of the firm. Computer model runs this morning were less than conclusive. "The models are mixed today with the American and Canadian ensembles showing more cold in the East and South compared to the European version. All of them at least agree on keeping any major warming potential across southern Canada, especially back toward Calgary."

Analysts see something of a standoff between current cold weather and expected robust production and rig counts. "The market seems to be caught in a trading range with cold weather offering support and high production levels supplying resistance," said Mike DeVooght, president of DEVO Capital, a Colorado trading and risk management firm. DeVooght calls recent declines in the rig count as a "seemingly bullish signal and traders will continue to watch [it] closely. We will maintain our current target levels to sell forward if prices rally to the upper $4.00 handle."

Near-term weather moderation notwithstanding, analysts see ongoing cold weather pummeling the market for the foreseeable future despite longer-term government data. From a weather-market bull's perspective, is this cold as good as it gets?

"Despite the coldest readings for the November 24th through December 7th period in mid-England since 1772, and very cold endings to the year in the eastern U.S. and Europe, NOAA and NASA have both proclaimed 2010 in a tie with 2005 as the warmest year on record. From where we sit, it is difficult to tell if this is a trend towards warmer weather or towards more volatile and extreme weather, but we do not pretend to be weather-wise enough to have a truly legitimate opinion on the matter," said Peter Beutel, president of Connecticut-based Cameron Hanover.

From his Connecticut vantage point, warmth at present seems a stretch. "We seem to be trending towards the colder side in the U.S. this winter, but this is just a small portion of the planet's surface. Still, the record was for 2010, and we are not even through the first month of 2011."

Beutel admits that an immediate impact on prices is tenuous. "Of course, that [warmth] might not have any real impact on prices near term. The forecast horizon is called on the colder side, and it is difficult to take last year's reported warmth and extrapolate it into a specific number of tropical storms or hurricanes this coming summer. And, supposing we could calculate the number of storms coming, we would fall short on the apparent key of identifying where they might make landfall. Right now, it is cold and seems likely to stay cold."

The National Weather Service forecasts that for the week ending Jan. 22 New England will see 297 heating degree days (HDD), or 13 more than normal. New York, New Jersey and Pennsylvania are forecast to shiver under 285 HDD, or 21 more than normal, and the Midwest from Ohio to Wisconsin is predicted to hunker down under 325 HDD, or 28 more than normal.

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