September natural gas is set to open 5 cents higher Monday morning at $2.85 as overnight weather models called for a warmer mix than was apparent Friday. Overnight oil markets rose.
Overnight forecasts turned warmer. MDA Weather Services in its morning six- to 10-day outlook said, "The forecast trends warmer versus expectations from Friday, particularly along the northern tier. Above-normal temperatures are now forecast from the eastern Midwest to the Northeast, with 'aboves' in these areas fairly steady throughout the period. Above-normal temperatures can also be expected along the West Coast and into parts of Texas, with changes over the weekend reflecting an increase in Pacific influences as the -AO [Arctic Oscillation] trends back towards neutral.
"While most of the South leans warmer than normal as well, anomalies are weak in that region. Confidence is moderate overall."
Risk managers see an influence from broader commodity market trends. "Although most of the U.S. is starting to see a slight increase in temperature, more than adequate supplies and general weakness in the commodity markets (especially crude oil) continues to keep the gas market under pressure," said Mike DeVooght, president of DEVO Capital.
DeVooght sees the likelihood of a major market move in either direction as remote and counsels trading accounts, end-users and producers to initiate no new positions. "On a trade basis, it's difficult to make a case for a significant move, either up or down, in the gas market at this time. We will continue to stand aside and await future developments," he said in a weekly report to clients.
Some traders aren't waiting for a significant move. They will try to capitalize on their weather expertise to capture what they see as a near-term market advance. Weather trader Bespoke Weather Services said it went long Sunday evening "after looking through the most recent weather model guidance and price action.
"We were impressed by the gap up of 4.8 cents from Friday's 5:15 p.m. electronic close, and though we still sit up 1.2% above Friday's pit close we feel that there is more room for prices to run into [Monday] and Tuesday.
"The evening run of the GFS is the most bullish we have seen in a few days, and we feel the heat along the East Coast has not been entirely priced in yet. Accordingly, we will play for an early week test of the $2.92 resistance level.
"We may add to this position on weakness [Monday] morning if we expect GFS modeling to remain bullish tomorrow afternoon. Our stop sits at $2.78, as we will re-evaluate our long position should the gap from this evening be filled during the day tomorrow."
In overnight Globex trading September crude oil rose 32 cents to $44.19/bbl and September RBOB gasoline added 2 cents to $1.6466/gal.