With the latest model trends favoring more warmth in the United States over the next two weeks, natural gas futures retreated in early trading Friday. The February Nymex contract was down 7.8 cents to $2.651/MMBtu at around 8:40 a.m. ET.

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In its latest forecast early Friday, Bespoke Weather Services said the outlook shifted warmer for a third straight day, pointing to “the trend in modeling to slow down the demise” of the positive Eastern Pacific Oscillation signal, associated with warmth in the Lower 48.

“This not only has warmed up the nearer-term outlook but has delayed the attempt in the 11- to 15-day to generate a true cold air mass up in Canada,” Bespoke said. “The look of the pattern toward Jan. 20 still is one that is consistent with colder outbreaks, in at least the middle of the nation…but the obvious problem is whether or not this can finally progress forward.

“The market is clearly tiring from the can getting kicked down the road. We do still think a colder period can come late month, but damage to the bull weather case is being done by virtue of this nearer-term warming, for now.”

Meanwhile, the U.S. Energy Information Administration (EIA) on Thursday reported a withdrawal of 130 Bcf for the week ended Jan. 1. The latest withdrawal reduced inventories to 3,330 Bcf, though stockpiles were still above the year-earlier level of 3,192 Bcf and above the five-year average of 3,129 Bcf.

Including impacts from the holiday period, analysts at Wood Mackenzie said the withdrawal came in neutral versus the five-year average when compared to degree days and normal seasonality.

“Very large holiday impacts add a significant layer of uncertainty around Christmas/New Year’s, and we suggest caution against reading too much into reported stats” around this time of year, Wood Mackenzie analyst Eric Fell said. 

Based on the latest reported withdrawal, analysts at Tudor, Pickering, Holt & Co. (TPH) estimated a roughly 2 Bcf/d oversupplied market for the period based on historical degree day correlations.

“However, we see this being a holiday period aberration, as power generation and Mexican exports fell a combined 4 Bcf/d but have since recovered to normal levels,” the TPH analysts said. “Degree days for the week were 8% below norms and continue the unimpressive streak of weather that has cumulative degree days for the withdrawal season also down 8%.”

The market has been in a “structural undersupply,” but weak weather-driven demand has “prevented material storage draws” so far this winter. Inventories sit at their highest level for this time of year since 2016, according to TPH.

“Under a normal weather scenario, we see storage balances still capable of drawing to the five-year average by the end of the injection season and at such a level we see $3/MMBtu representing fair value,” the TPH analysts said.

February crude oil futures were up 71 cents to $51.54/bbl at around 8:40 a.m. ET, while February RBOB gasoline was up about 2.3 cents to $1.5056/gal.