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Traders Exiting March Positions Despite Frigid Weather Remaining In Play

The expiring March futures are expected to open 26 cents lower Wednesday morning at $4.840 as traders continue to unwind positions and anticipate less volatile trading in the April contract. Overnight oil markets inched higher.

Weather forecasts overnight changed little. WSI Corp. in both its six- to 10-day and 11- to 15 day outlooks saw no major changes. "No significant alterations were made to today's 6-10 day period forecast when compared to the previous forecast [and] forecast confidence remains near to slightly below average standards as a result poor agreement between the latest model guidance solutions."

It noted that "We are in a period of increased model uncertainty as a result of models struggling with the upstream pattern over the Pacific. The latest European ensemble model forecast indicates warmer risks to the forecast over the eastern two thirds late in the period under weak ridging over the Midwest."

WSI forecasts that Chicago will see a high Friday of 15. Philadelphia's high is projected to reach 26.

Traders see the recent wild gyrations in the March contract as divorced from market fundamentals. "With the temperature outlook still pointing to colder than normal temperatures in the eastern U.S. through th 11-15 day forecast period it is hard to see how the underlying fundamental picture ties in with the price action so we are inclined to attribute it to an imbalance in the March trade flows than any material change in the physical market," said Tim Evans of Citi Futures Perspective. "The steadier performance of the April futures supports this hypothesis to some degree."

With colder weather in play Evans projects that the year-on-five-year storage deficit would expand to 1,006 Bcf by March 14, an increase of 77 Bcf from his earlier forecast. "If storage reverts to five-year average flows in the weeks to follow, inventories would hit a low of 807 Bcf at the end of March, the lowest level since 2003. The arrival of spring may take some of the pressure off inventories as an offset to the growing storage deficit, but we continue to think the downside will prove limited and that the market can trade higher."

Evans calculates a pull of 128 Bcf in Thursday's storage report. Last year 165 Bcf was withdrawn, and the five-year average is 125 Bcf.

In overnight Globex trading April crude oil rose 55 cents to $102.38/bbl and April RBOB gasoline gained fractionally to $2.9725/gallon.

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