September natural gas is set to open a penny lower Thursday morning at $2.85 as traders still find themselves dealing with expected government storage data showing storage builds to be above the long-term averages. Overnight oil markets rose.
The 10:30 a.m. EDT release of storage data by the Energy Information Administration (EIA) will give traders a chance to observe industry supply and demand under its most extreme test this season. Heat and humidity distributed from the East Coast as far south and southeast as Texas lifted power burns to season-high levels. Last year 88 Bcf was injected, and the five-year pace stands at 48 Bcf.
Estimates are coming in higher than the five-year pace and should make a modest contribution to a slowly building year-on-five-year surplus. Analysts at IAF Advisors calculate a 53 Bcf injection, and a Reuters survey of 24 traders and analysts revealed an average 54 Bcf with a range of 47 Bcf to 59 Bcf. Bentek Energy is expecting its flow model to show 55 Bcf.
Natgasweather.com's Andrea Paltrinieri is looking for a build of 54 Bcf and says her figure was revised lower because of lower production data last week, otherwise the figure would have been in the high 50s. "In regards to supply-demand, I see 54 Bcf as a bearish number for the overall balance, weather adjusted, and I see EOS at 4 Tcf with normal weather patterns. For supply-demand, I have as a neutral number 48 Bcf, in line with the five-year average. Any number below 47 would be bullish and above 50 bearish! However, since the market is incorporating 53-54 Bcf...we could have some brief upside tomorrow with any number below estimates. But we need to disentangle market reaction from supply-demand balance.
Bentek said in a report that hot weather over major markets took its toll on weekly injections and the physical market tightened considerably. According to Bentek, production fell to less than 72.0 Bcf/d, for the first time in July, and demand soared with power burn up to 34.0 Bcf/d for the first time since 2012.
"Injection activity fell to its lowest levels since early in the season, and Bentek expects the salt dome facilities to announce another net withdrawal during for this week's storage report. Last week's report suggested that the East Region's demand is picking up, slowing injection activity within the region, although injections continue to pace along above five-year average levels," the company said in a report.
Near-term weather outlooks suggest a cooling and the chance at higher builds next week. "A cold front will stretch from the eastern Great Lakes to the lower Mississippi Valley on Thursday, while stormy weather develops across the Southwest," said Wunderground.com's Kari Strenfel.
"A cold frontal boundary will extend south-southwestward over the eastern Great Lakes, the interior Mid-Atlantic, the Tennessee Valley and the lower Mississippi Valley. This frontal boundary will interact with warm, humid air from the Gulf of Mexico, which will initiate a line of rain and thunderstorms across the Eastern Seaboard and the eastern half of the Gulf Coast. The heaviest rain will likely develop along the eastern Gulf Coast due to moisture pooling from the Gulf of Mexico."
In overnight Globex trading September crude oil gained 16 cents to $48.95/bbl and September RBOB gasoline rose 3 cents to $1.7860/gal.