September natural gas is set to open 3 cents higher Wednesday morning at $2.84 as traders factor in a mix of near-term warmth and the prospects of a thin government inventory report Thursday. Overnight oil markets rose.
Tuesday's advance came as "warmer than normal temperatures in the 11-15 day forecast continued to promise increased power sector demand and lower storage injections," said Tim Evans of Citi Futures Perspective in closing comments to clients.
Industry consensus for Thursday's storage report seems to be congesting in the 40 to 45 Bcf range, well below last year's 83 Bcf injection and less than the five-year average of 53 Bcf. Evans predicted a fill of 40 Bcf and taking into account weather forecasts sees the year-on-five-year surplus sliding from 85 Bcf to 60 Bcf by Aug 21.
"We see this tightening, particularly in contrast to the moderately bearish scenario of a week ago, as giving natural gas a fresh chance at an intermediate-term short-covering rally back above the $3.00 mark," Evans said.
Evans' earlier long position was stopped out for a modest gain, and he said he is currently on the sidelines, "but with an eye toward opening a long position once we can identify a low-risk entry point."
Gas buyers for power generation across the MISO footprint can expect some help from modest wind generation. WSI Corp. in its morning outlook said, "A developing southerly breeze this afternoon supports a period of elevated wind generation [Wednesday], where output could peak out around 3-5GW. Flow will accelerate tomorrow and support elevated wind generation prospects where output could peak around 4-7 GW. Modest wind generation prospects remain the rule through the weekend, forecast to peak around 3-4 GW."
Longer term, WSI reported a slight cooling in both its six- to 10-day and 11- to 15-day outlooks with PWCDDs decreasing by one in each case.
Tom Saal, vice president at FC Stone Latin America LLC, in his work with Market Profile expects September futures to test Tuesday's value area at $2.807 to $2.787 before moving on and testing $2.741 to $2.711. His weekly breakout targets are $2.821 to the upside and $2.707 to the downside.
"One of the key features of Market Profile is analyzing vertical and horizontal pricing behavior of participating traders. This year is simply characterized as solid horizontal pricing. The typical pricing behavior is vertical, then horizontal, then vertical...and the longer the horizontal, the bigger the following vertical pricing," he said in a morning note to clients.
In overnight Globex trading September crude oil added 39 cents to $46.13/bbl and September RBOB gasoline gained 2 cents to $1.7064/gal.