Natural gas futures were off sharply in early trading Monday, erasing gains recorded alongside front-month expiration late last week as analysts pointed to warming forecasts and weaker fundamentals. The January Nymex contract was down 51.5 cents to $4.962/MMBtu at around 8:40 a.m. ET.

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The December contract rolled off the board on Friday with a 37.9-cent rally, a move EBW Analytics Group senior energy analyst Eli Rubin characterized as a “settlement-induced price spike” that had little fundamental push behind it.

Outside of “modest increases” in liquefied natural gas feed gas demand, the sharp move higher Friday “occurred despite notable further deterioration in the fundamental picture for natural gas,” Rubin said. 

Forecasts have lowered heating demand expectations compared to projections prior to the Thanksgiving holiday, according to the analyst.

“Production scrapes, while fickle and often higher late in the month, rose 1.0 Bcf/d week/week. The end-of-March storage trajectory is comfortably above 1,500 Bcf,” Rubin added. January was already off sharply early Monday “as the market recalibrates to pre-December final settlement price moves. Deeper losses are likely later this week, though, as particularly mild weather from Wednesday to Friday will decimate physical market demand and intensify downward pressure on Henry Hub spot prices.”

Friday’s model runs showed some “modest colder changes,” but over the weekend forecasts advertised a “decisive shift” warmer, according to Bespoke Weather Services.

The warmer outlook is a result of models moving toward “both a Pacific and Atlantic pattern that is unfavorable for cold air delivery into the U.S.” after the first few days of December, Bespoke said. “This leaves us with a forecast that is solidly warm this week, with a modest colder shot into the East this weekend into the start of next week, followed by a warmer pattern.”

Conditions for the 15-day outlook are on track to keep gas-weighted degree day totals “easily below normal” overall, according to the firm.

Friday’s settlement price appeared “wildly overinflated” and was likely a result of “typical buying into contract expiration,” Bespoke said. If the weather pattern fails to threaten colder temperatures moving into the back half of December it “would likely be all that is needed to run the January contract down toward the $4.50 level, in our view.”

Looking ahead to this week’s Energy Information Administration (EIA) storage report, NGI’s machine learning model is predicting a net 58 Bcf withdrawal for the week ended Nov. 26. That would compare bullishly with both the five-year average (minus 31 Bcf) and year-ago (minus 4 Bcf) withdrawals for the period.

After a slow start to the withdrawal season, “draws are poised to accelerate in the coming weeks,” according to analysts at Tudor, Pickering, Holt & Co. (TPH).

Residential/commercial demand is increasing, and “power generation remains supportive — well above historical trends as coal generation remains weak versus norms, even though wind generation has been setting new seasonal highs in recent weeks,” the TPH analysts said. 

In terms of supply, TPH said estimates show U.S. dry natural gas production “range-bound” around 94.5 Bcf/d to 95.5 Bcf/d, easing off slightly from early November levels above 96 Bcf/d.

January crude oil futures were up $3.86 to $72.01/bbl at around 8:40 a.m. ET.