January natural gas is expected to open 3 cents lower Friday morning at $3.48 as traders digest highly overbought market conditions and mull positions before a weekend that could bring unexpected weather developments. Overnight oil markets eased.
Traders see the market embracing the trend to colder temperatures at the expense of record storage. “[A]lthough supply remains at a record level per date, this static factor continues to take a backseat to the bullish dynamic of upcoming cold weather trends,” said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients. “Technical indicators also appear bullish amidst fresh multi-week highs that have been developing on almost a daily basis.
“While our indicators are beginning to signal an overbought condition, the market also appears to see little chart resistance until the mid-October highs of about $3.67. In sum, we will continue to caution against attempts to pick a top to this strong three-week price advance as we continue to emphasize holding bull spreads that appear capable of capturing the influence of additional expected strengthening in the cash basis.
“While allowing for a pause, or a consolidation phase, for a few sessions as the market digests the huge 80-cent price up move of the past three weeks, we feel that a further extension of cold temperature forecasts toward the Christmas holiday break could further advance January futures toward the October highs of about $3.67. Nearest price support develops at about the $3.37 level that could easily be tested on even a minor bearish shift in the weather views. But for now, we are steering away from any strong buy or sell recommendations at this early stage of the heavy usage cycle when even minor shifts in the forecasts tend to prompt an outsized price response.”
Gas buyers across PJM for Friday and weekend power generation will have only a nominal amount of wind power to offset gas purchases. “[A] complex, split storm system will introduce an increasing chance for one round light rain/snow showers during late Sunday into early Monday,” said WSI Corp. in its Friday morning report to clients. “A second round of rain, perhaps even some wintry weather, is possible during Tuesday. Temperatures will generally fluctuate in the upper 30s, 40s to mid 50s.
“A brisk west-northwest wind behind the cold front will continue to support elevated wind generation [Friday]. Output is forecast to range 2-3 GW. Eventually, wind gen will drop off and become light during the majority of the weekend with only modest improvement during early next week.”
In overnight Globex trading January crude oil fell 17 cents to $50.89/bbl and January RBOB gasoline shed a penny to $1.5341/gal.
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