May natural gas is expected to open 3 cents higher Tuesday morning at $2.67 as overnight model runs suggest a slight trend to cooler temperatures and Market Profile hints at steady prices. Overnight oil markets fell.
Weather models turned slightly cooler overnight. WSI Corp. in its Tuesday morning report said, "[Tuesday's] six-10 day forecast is a bit colder across the northern tier of the nation but warmer across the southern U.S. due to model trends. Period GWHDDs are nearly unchanged near 65 for the CONUS. Forecast confidence is average at best as medium-range models are in modest agreement with the general pattern.
"However, there remain key technical and timing differences with a frontal system across the northern U.S., which may lead to large variability due to a tight temperature gradient across the northern U.S. The southern U.S. has a slight upside risk, but the Northeast, Great Lakes and Midwest have a risk to the colder side."
Analysts see another build for Thursday's storage report but aren't convinced of a shortfall of capacity by the end of the season.
"Our opinion of this market is in many ways analogous to that of the oil [market]. Although natural gas isn't setting on a supply surplus, production is continuing to increase even as gas rig counts remain on the decline," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients Monday. "But as is the case in the petroleum, we still see high probability of a price drop to the $2.50 area and possibly to as low as $2.40 if the next couple of months prove mild with limited elevation in CDDs or HDDs.
"[Monday's] modest price lift appeared to represent some lingering expectations for some cool temperatures across northern tier states with extension out to about April 13th. However, maintaining upward momentum will be challenged by the likelihood of another counter-seasonal storage injection on Thursday. While our expected 7 Bcf increase is small, it would force further narrowing in the deficit against five-year averages.
"Much of our bearish trading thesis across the coming month remains predicated on rising production that will be boosting injections with the longstanding supply shortfall against normal levels eventually being erased. While we will reiterate that we see no overcrowding as far as storage capacity is concerned next fall, we do feel that much smaller injections will be required to meet ample end-of-season supply than was the case last year. This, of course, should relate to a significantly lower pricing environment. We still see contango expansion ahead."
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile sees pricing patterns developing that indicate less likelihood of still lower prices. "Counting four non-trend days (very unusual) signifies strong horizontal pricing at the bottom of the move. These non-trend days infer a lack of aggressive selling, most likely by speculators. Who else is there [to sell]?" he said in a Tuesday morning note to clients.
In overnight Globex trading May crude oil fell 83 cents to $47.85/bbl and May RBOB gasoline gave up 4 cents to $1.7574/gal.