June natural gas is expected to open 4 cents lower Monday morning at $2.84 as traders see little in the way of near-term weather patterns sufficient to move the market and await the opportunity for producers to mitigate their risk. Overnight oil markets were mixed.
Risk managers Friday saw the day's advance as a short-covering rally, but if it continues they are ready to initiate producer hedges. "It's that time of year when the natural gas is searching for direction as we enter the summer cooling season," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "As of now, the jury is still out on whether or not the market can rally this summer. A further short-covering rally is very possible from these levels, considering how short the funds are at this time. On a trade basis, we will stand aside and await further developments.
"If we do get a significant short-covering rally, spot month trading above $3.00-3.20, the deferred [months] above $3.50, we will look to establish producer collars (buy puts/sell calls)."
Forecasters in the intermediate term see active weather patterns, but little in the way of extreme temperature conditions likely to materially impact the supply-demand balance. Commodity Weather Group in its Monday morning outlook said, "The big story over the next two weeks continues to be the warm pattern over the Midwest and East with its attempts to get strong enough to generate more significant early season cooling demand. We continue to track these spikes in the stronger direction, including a very humid 80s condition in the Mid-Atlantic [Monday] and a dry-heat surge into the first 90s for tomorrow. A transient cool push still races through the eastern half of the country mid to late this week, and it moves out slightly slower this weekend to linger a few extra late-season HDDs in the East before warming rebounds.
"Some additional demand gains from Friday are noted from warmer changes in the South at times later this week into next week, but Texas still avoids any major heat as wetness issues persist. Very cool anomalies plague the Southwest and California, offering some national demand offsets to this forecast," said Matt Rogers, president of the firm.
Natgasweather.com sees the current weather environment setting the stage "for massive 100-plus Bcf builds in supplies starting this week and lasting through the rest of the month. We are still expecting a record weekly build for Thursdays EIA report, with our calculations show it coming in over 127-plus Bcf, with a slight decrease for next week's due to cooler northern U.S. temperatures. Overall, we still view weather sentiment as bearish, even with gradually hotter temperatures gaining ground during the latter half of May."
In overnight Globex trading June crude oil rose 17 cents to $59.56/bbl and June RBOB gasoline fell fractionally to $1.9911/gal.