January natural gas gave back almost all of Tuesday’s 10.8-cent gain as traders see little in the way of near-term weather cold enough in key markets to have a material market impact. At the close January had retreated 8.3 cents to $3.550 and February shed 7.5 cents to $3.578. January crude oil closed over the century mark, posting a gain of 57 cents to $100.36/bbl.

“The bottom line is that there are no below- normal heating forecasts for the Upper Midwest or Northeast so it’s going to be hard to get excited about any material winter spike,” said a Chicago banker.

“I believe that this market could trade within a dollar range for no good reason whatsoever. We could be within a dollar range just from normal [market] ‘noise.’ Prices could rally from recent lows, but it doesn’t necessarily mean that we are going to $5 at any point in time this winter. To me it almost looks too late.”

The banker concurred with the idea of prices swinging as low as the mid-$2 area just on what he calls “noise.”

“I think a washout could take us as low as $2.50, but that is as low as I see this market possibly going if we continue to see the types of forecasts for no below-normal temperatures in any of the key heating demand regions. If we have normal temperatures, I don’t think that is enough to keep prices moving higher, or to prevent prices from falling materially for that is comparing to a very cold December and January of last year.

“I’m a little disappointed for I expected winter prices to trade higher than they are trading now, and I was basing that on the combination of a colder winter and a storage deficit going into the winter. Statistically I have noticed that we don’t have a second winter in a row where the winter prices settle below the prior injection season’s prices. That’s never happened two winters in a row. There’s still time, but if we don’t see something severe and soon, that prediction is going out the window.”

For the week ended Nov. 18 predictions for the weekly gas inventory report went out the window quickly as the Energy Information Administration (EIA) reported an increase in storage far below what traders were expecting. EIA said inventories grew by a thin 9 Bcf, well below the 19 Bcf the industry was generally expecting.

This week traders are calculating a build much closer to last week’s 9 Bcf. Tim Evans of Citi Futures Perspective estimates an 8 Bcf increase and a Reuters survey of 25 analysts showed an average 9 Bcf with a range from two to 21 Bcf. Industry consultant Bentek Energy utilizing its North American flow model predicts an increase of 12 Bcf.

Bentek said in a report it “considers the 12 Bcf injection to have equal risk to the upside and downside this week. Following two weeks of relatively small injections, a smaller withdrawal than currently forecasted could materialize. The Thanksgiving holiday weekend also adds potential upside risk to the 12 Bcf build, as more gas could have gone underground due to weak demand. The downside risk is greater in the Producing Region where injections have been overestimated.”

The surplus relative to last year and five-year averages is likely to grow. Last year at this time 21 Bcf was withdrawn and the five-year figure is for a pull of 29 Bcf.

Other analysts suggest that cooler weather and, by extension, higher prices are right around the corner. “[A]ny look at a calendar quickly disabuses one of any notion that the weather will take its time to turn chilly. It is December tomorrow [Thursday], and any quick look at the family picture album can remind one that this is the coldest month of most years,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. “It’s actually in second, close second, just behind January. The ‘Heart of Winter,’ or the coldest part of most years, runs from Dec. 15 to Jan. 31. The last 15 days of December can often be colder than anything in January, but the cold part of January has twice as many days. Nonetheless, December can do a number on heating degree days [HDD].”

December may not be ready to rack up large numbers of HDDs just yet. According to the National Weather Service, heating requirements in eastern markets are actually forecast to decrease for the first week in December. For the week ended Nov. 26 New England tallied 158 HDD, or 29 fewer than normal; and the lower Northeast states of New York, New Jersey and Pennsylvania saw 130 HDD, or 43 fewer than normal.

For the week ending Dec. 3, however, HDDs are forecast to decrease. New England is anticipated to have 123 HDD, or a whopping 82 fewer than normal; and the Mid-Atlantic is expected to have 117 HDD, or 73 fewer than its seasonal norm.

Natural gas bulls will also continue to face obstacles in the form of continued increased production. The Energy Information Administration reported Tuesday that gross production of natural gas increased 1.1% (0.72 Bcf/d) in the Lower 48 states during September, according to the latest government figures. All areas except for the federal offshore Gulf of Mexico produced more to make for the seventh monthly gain in a row (see Daily GPI, Nov. 30).

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