January natural gas is expected to open 11 cents lower Monday morning at $3.98 as the market extends Friday’s 27-cent drop on the heels of a more tempered weather outlook. Overnight oil markets were mixed.
Weather forecasts moderated in the near- to mid-term. WSI Corp. in its morning 11- to 15 day outlook showed most of the country at normal to above normal temperatures with the exception of a strip running from southern Virginia to southernmost Texas. No part of the country is expected to be below normal.
“[Monday’s] 11-15 day period forecast is warmer than the previous forecast over the much of the nation, except the Southeast. Confidence in the forecast is average as medium-range models are in rather good agreement with the large-scale pattern.”
Risks to the forecast include “a slight downside risk along the East Coast into the South early in the period. Split flow may also result in a slight downside risk across the Southwest into Texas late in the period. Otherwise, the northern U.S. may run even warmer.”
Prior to Friday’s January 27-cent plunge, Mike DeVooght of Colorado-based DEVO Capital saw the market closing “higher across the board, but well off the week’s highs. We did test the $4.50 level, last week’s high, but failed to move above that level. Over the next week, it is very possible that we could probe the $4 level again. But we feel that the $4.00-4.10 level should hold for the next few weeks. We still feel there is a very good chance that we will move above $4.50, possibly $5, before mid-winter. The funds are still holding a very long short position,” he said in a weekly note to clients.
“On a trade basis, we will continue to hold our long calls and short puts. For producers, we are still looking to establishing short hedges if we get in the mid $4.00 level on the forward six and 12 month strip. We are in no rush to sell the balance of the winter strip at this time. If considering just locking in the winter, we would do so in the $4.70-4.90 range,” he said.
In surveying the trading landscape, Tom Saal in his work with Market Profile said, “Good ‘old fashioned’ price volatility is back.” He is looking for the market to test last week’s value area at $4.373 to $4.137 and then test $3.927 to $3.727.
In overnight Globex trading January crude oil added 16 cents to $66.31/bbl and January RBOB gasoline shed a penny to $1.8210/gal.
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