December natural gas is expected to open a penny higher Thursday morning at $4.20 as traders balance forecasts of extreme cold weather with a government report that is expected to show record additions of gas into inventory. Overnight oil markets eased.
Weather forecasts changed little overnight with meteorologists calling for below-normal temperatures to dominate the eastern three-quarters of the country out to 15 days. "Our six-10 day map has an area of strong below-normal temperature (-15 F or colder) anomalies for the first time this season as we track a very strong cold air outbreak next week," said Matt Rogers, president of Commodity Weather Group, in the forecaster's morning report.
"Some of the overnight models have strengthened the surface high to levels usually seen in the core of the winter. The European operational and upgraded GFS (parallel) model both show a 1050-1051 mb high-pressure powerhouse dropping down next week. As a result, while our confidence remains high on this cold pattern with good model agreement, we did increase the colder risks to our forecasts particularly for the middle of the country at the point of entry.
"We drop Calgary's low to below 0 F by next Tuesday morning with this event. The 11-15 day is still cold-dominated, but the models vary on details and none are as strong as the six-10 day. The key though is that the European ensemble keeps the West Coast to Alaska ridge going even at day 15."
WeatherBELL Analytics forecasts well above normal heating requirements for the next two weeks. Nationally, a whopping 304.3 heating degree days (HDD) are expected through day 15. Last year, 236.8 HDD were seen, and the 30 year average is for 235.1 HDD.
A futures trader Wednesday said, "it looks like up, up, and away and it's all about the weather. It's amazing how many 15-day forecasts come out, but I don't think we are done to the upside," said the New York floor trader. "I think we have a chance to test $4.35 to $4.38 and then pull back from there. Traders are waiting to see if sustained cold is going to come in the next 15 to 25 days, and I would not be short here. I would look to sell at $4.35 to $4.40."
Although the traditional injection season ends at the end of October, all indications are that storage builds will continue well into November. This week's injection report is expected to be in the neighborhood of an upper 80s Bcf build, and industry consultant Genscape "expects the EIA will announce 85 Bcf of gas was injected during the storage week ending Oct. 31. The estimate is the composite of our Supply & Demand model -- which is calling for an 80 Bcf injection -- and our sample estimate -- which pegged an 84 Bcf injection. If realized, an 85 Bcf injection would be the largest for this storage week in the last five years. The current record is 78 Bcf injected for week ending Oct. 28, 2010."
Last year, 35 Bcf was injected, and the five-year average stands at 42 Bcf. Analysts at Citi Futures Perspective forecast a build of 87 Bcf, and Bentek Energy is looking for an 88 Bcf increase utilizing its flow model, but it cautions that its supply-demand model is predicting a 93 Bcf build. A Reuters survey of 27 traders and analysts revealed an average 85 Bcf with a range of 75 Bcf to 90 Bcf.
In overnight Globex trading, December crude oil dropped 83 cents to $77.85/bbl and December RBOB gasoline skidded a half cent to $2.0809/gal.