April natural gas is set to open 2 cents lower Friday morning at $2.71 as traders thoroughly discount forecasts of cool temperatures next week and concentrate on supply issues. Overnight oil markets fell.
Analysts concede that next week's temperature outlook may be cooler than earlier reports, but at this late stage of the withdrawal season, any market impact is likely to be minimal. "[S]ome of the outlooks that we monitor appear a bit more supportive than yesterday as temperatures within the heavily populated northeast region are looking colder, while mild trends across most of the country are expected to end by the middle of next week," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning report to clients. "Consequently, a couple more storage withdrawals could be forthcoming before the shoulder period begins to force injections.
"We feel that the market is likely discounting a supply draw in next Thursday's EIA release of around 30-50 Bcf. As a result, a seasonal supply bottom below 1.5 Tcf would appear likely in keeping supply well below five-year average levels by a margin of around 10-12%. But this deficit is apt to be erased next month as strong production replaces the weather factor as primary driver of supply trends. We will continue to emphasize that updated weather outlooks suggestive of significantly below-normal temperatures will not be packing the pricing punch as similar deviations from normal during the month of January."
Weather forecasters are calling for a shot of cold air next week, but any significant impact on supply-demand balances going into the injection season seems doubtful. "The latest weather data continues streaming in, and it's confirming our concerns about the cold blast arriving Tuesday and Wednesday of next week not pushing far enough into the Midwest, and thus will only impact the Northeast with any truly cold temperatures," said Natgasweather.com in a noon update Thursday.
"While it will drop overnight lows below freezing over much of the northern U.S., lows of teens and 20s will only be found across the upper Great Lakes and Northeast, which isn't likely going to be enough coverage to expect it would lead to a stronger-than-normal withdrawal during the sample period used for the EIA report. There will be stronger cold blasts pushing into the northern U.S. late in the week, which is likely to have better success advancing across the Midwest with colder than normal temperatures, but if additional cold blasts fail to follow after March 23-24th, heating demand will be quite light over the U.S."
In overnight Globex trading April crude oil fell $1.02 to $46.03/bbl and April RBOB gasoline dropped a penny to $1.7925/gal.