September natural gas is expected to open a penny lower Friday morning at $2.80 as traders look beyond the heat and humidity grilling Texas and the Southeast and anticipate record storage by the end of the season. Overnight oil markets weakened.
Analysts for the near term see a rangebound market with an expected cooling pattern developing that should prompt higher storage builds going forward. "We expect a quiet finish to this week's trade as the market still appears balanced with the supply surplus against five-year average levels now back to less than 65 Bcf," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning report to clients.
"While bullish-inclined traders can cite [Thursday's] supply build that came in more than 10 Bcf less than average Street ideas as a significant supportive factor, bearish participants can hang their hats on the negligible price response to a seemingly bullish number. At the end of the day, this market still looks like a standoff between the bulls and the bears that will likely be precluding a price swing of much more than 20 cents in either direction from yesterday's settlement even when extending a view out through the rest of this month.
"We will continue to advise that traders adapt to changing market conditions by considering option straddle positions designed to collect premium in a market that could potentially show little change from current levels a month from now or even two months down the road. The record power demand that contributed to yesterday's sharply downsized injection appears unsustainable with some cool temperatures now being projected in some cases through the third full week of August. And although a season-ending storage of 4 Tcf may appear out of reach, a record supply level still represents strong probability."
Gas buyers over the weekend for Texas power generation will have their hands full juggling not only oppressive heat and humidity but also fluctuating wind input. WSI Corp. in its Friday morning report said that for ERCOT, "Hot weather will remain the rule for most of the period under a sub-tropical heat dome over the south-central U.S. Daytime high temperatures are expected to rise into the upper 90s, and low to mid 100s. 'Feels like' temperatures are going to be extremely elevated here, rising into the 105-115 F range! Models are indicating some risk for less extreme heat next week as a cold front slowly noses down the central and eastern U.S.
"A diurnally driven favorable wind generation pattern will be the rule through the period, with afternoon lulls dropping to around 3-4 GW and overnight peaks near 8-10 GW. The 10 GW peaks are favored this weekend. However, flow is expected to reduce early next week and reduce generation prospects late in the period."
Hefty wind generation can't come a moment too soon as Texans continue to consume record amounts of electric power. On Wednesday ERCOT reported a record peak load of 68,459 MW, but that was beaten Thursday on two separate occasions. Between 3 and 4 p.m. CDT demand set a new record at 68,538 MW, but just an hour later demand reached another record between 4 and 5 p.m. CDT at 68,912 MW.
In overnight Globex trading September crude oil fell 21 cents to $44.45/bbl and September RBOB gasoline shed 2 cents to $1.6237/gal.