March natural gas is set to open 16 cents higher Tuesday morning at $5.07 as traders balance somewhat milder short-term weather forecasts with expectations of the thinnest ending inventories since 2008 when spot futures traded over $10. Overnight oil markets were narrowly mixed.
Near-term weather forecasts continue to show below to much below normal temperatures throughout the eastern two-thirds of the nation with the exception of Florida, but they did moderate somewhat overnight. WSI Corp. in its morning six- to 10-day outlook said, "[Tuesday's] forecast has trended a bit warmer in the West early in the period and in the East late. Forecast confidence remains slightly above average with relatively good large-scale model agreement and stability.
"The ECMWF [European model] is quite aggressive to warm the Midwest on days nine-10, but preference was placed in a slower moderation as there are pretty strong signals for another storm to track through the mid Mississippi Valley through the Ohio Valley, which would keep most of the Midwest below normal, especially daytime maxes."
Analysts see the $5.50 futures threshold as a tough nut to crack. "Until enough warming in the temperature views is seen to lift [end of season] supply expectations back up toward 1.2 Tcf or more, this market will remain vulnerable to another price up-spike," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients. "As a result, we are maintaining our expected trading range of about $4.68-5.48 when extending a view out across this week and into the early part of next. Within a market that can swing as much as 70 to 80 cents in a single session, we will suggest trading off of our aforementioned parameters with a time frame of about two to three sessions.
"Meanwhile, we still see renewed strengthening in the popular March-April spread a trade that we still see as a proxy for an outright position. All in all, we will be expecting a run at last week highs but with a likely return to record high production limiting gains to above the $5.50 level. Until some normal or milder than usual temperature trends appear on the horizon, price sell-offs are apt to prove limited in both magnitude and duration as was evidenced again [Monday]."
Addison Armstrong of Tradition Energy sees gas prices "pushing back above $5.00 on expectations that end-of-withdrawal season inventory will fall to the lowest level in a decade. Also, the potential that more than 700 Bcf will be pulled from storage in the next couple weeks has helped boost the market. But milder weather forecasts for the second half of February and near-record production levels of gas should provide resistance to rising gas prices."
In overnight Globex trading March crude oil rose 17 cents to $96.60/bbl and March RBOB gasoline eased fractionally to $2.6027/gal.