May natural gas is expected to open 2 cents higher Friday morning at $2.55 as traders caution against further aggressive selling with prices close to three-year lows. Overnight oil markets were mixed.
Top traders see the market honing in on their short trading objectives but caution against further sales. "The lowest levels in more than two and a half years were violated per [Thursday's] drop to below the $2.57 level and a test of our long-stated objective at the $2.50 area is now close at hand," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday. "With the weather factor unable to spur much buying interest at this time of the year, some additional declines into the $2.40-2.50 zone should not be ruled out. But we will restate that we will be shifting from a bearish to a neutral trading stance on such a development.
"[Thursday's] injection that will likely be followed by additional sequential storage builds narrowed the supply deficit against five-year averages to 173 Bcf and we see additional contraction ahead. We will also note that current supply is about 79% above a year ago in accommodating a comparatively low pricing environment needed to attract supply to the utilities. By and large, we still see lower pricing ahead but with the market now approaching our targets, we will caution against fresh short holdings at current levels given unfavorable risk/reward ratios. And although term structure didn't respond much to [Thursday's] larger than expected injection [report], we still see [contango] expansion into new wide territory."
More immediately, gas buyers across the MISO footprint looking to secure weekend supplies may have a relatively easy task ahead of them as mild temperatures and stout renewables generation look to dominate the weekend. "A storm system and its associated rain, storm and snow will depart this morning [Friday] and high pressure will eventually build into the power pool during the next couple of days," said WSI Corp. in its Friday morning outlook. "High pressure may slowly slide to the east as the weekend progresses and a southerly flow will support the return of above-average warmth with highs in the 60s and 70s. A fast-moving frontal system may trigger scattered showers and storms late Sunday through Monday, but fair and mild conditions may return by Tuesday.
"A west-northwest wind around the backside of a departing storm system will continue to support strong wind generation. Output may range 8-9 GW. Wind gen may drop off tonight into Saturday morning. A warm southerly flow may cause wind gen to ramp back up as the weekend progresses, which will remain elevated into early next week. Output may once again top out in excess of 8-9 GW."
In overnight Globex trading May crude oil retreated 14 cents to $50.65/bbl and May RBOB gasoline gained 2 cents to $1.7765/gal.