February natural gas is expected to open 16 cents higher Monday morning at $4.21 as traders digest new weather reports that are calling for a return to colder-than-normal conditions in the near and intermediate terms. Overnight oil markets sagged.
WeatherBELL Analytics in its morning six- to 10-day outlook sees a cold incursion into the East with above normal temperatures in the Plains, desert Southwest, and California. The below normal temperatures include portions of New England and a patchwork arrangement extending from Wisconsin to West Virginia to Florida. Most of the Mid-Atlantic is seen as normal. East heating-degree-days are expected to tally 179.8, above last year's 143.1 and the thirty year average of 162.3.
Meteorologist Joe Bastardi noted that "There is more major cold on the way and the idea from last week that a major trough would develop this week, but without the arctic connection we will have with the late month trough, looks good. The confidence is high that once again, a stand against warmth was a good idea. The fact is that an outbreak is on the table for the end of the month from the Plains east as severe as the opening of the month . While the cold coming this week is formidable, it is not the magnitude of what has happened or is going to happen. I have beaten this horse into the ground, but I think we are going to see a textbook demonstration again of what source regions can do."
The onset of more cold isn't impacting some traders' longer term outlooks. Mike DeVooght, president of DEVO Capital suggests that trading accounts hold short Feb. $4.50 calls at 20 cents and also a short March futures position from $4.40 to v$4.50. End users should stand aside, and producers and those with exposure to lower prices should hold the remainder of a short March strip at $4.50 to $4.60 and continue to hold a short April October strip from $4.20 to $4.30.
"Fundamentally, we feel there is not much upside above the mid $4.00 level in natural gas. We would use rallies above the mid $4.00 level as an opportunity to add to forward sales," he said in a weekend note to clients.
Addison Armstrong of Tradition Energy sees "traders focus[ing] on strengthening seasonal demand factors, increasing industrial demand, and expectations for what will likely be a new all-time record storage withdrawal later this week. But near-record production levels of gas are likely to provide resistance to rising gas prices if temperature forecasts moderate in the coming weeks."
Industry consultant Genscape reports that "Midwest demand decreased by 2.4 Bcf/d week-on-week to 13.8 Bcf/d, [and] Appalachia production decreased by 0.9 Bcf/d week-on-week to 12.5 Bcf/d due to freeze-offs. More than half of the freeze-offs have returned online."
In overnight Globex trading February crude oil fell 23 cents to $92.56/bbl and February RBOB gasoline skidded a penny to $2.6677/gallon.