September natural gas is expected to open 2 cents lower Thursday morning at $2.91 as traders expect a government report to show a greater increase in storage compared to the previous week. Overnight oil markets fell.
At one point, analysts were singing a tune of ending inventories surpassing the 4 Tcf mark, but that seems to be something of a stretch at this point as ongoing hot weather and hefty power burns limit builds. Inventories currently stand at 2,912 Bcf and to reach 4 Tcf would require weekly increases in excess of 77 Bcf by the traditional Oct. 31 end of the injection season.
All indications are that this week's figures for the week ended Aug. 6 won't even come close. Last year, 78 Bcf was injected, and the five-year average is for a 48 Bcf build. Industry analyst ICAP Energy forecasts a 56 Bcf increase, and a Reuters survey of 27 traders and analysts revealed an average 55 Bcf with a range of 38 to 60 Bcf.
Natgasweather.com is looking for a little higher figure, about 59 Bcf, and said in a morning report that "if today's reported build is lighter than estimates, it will clearly add to already established bullish weather sentiment. However, if it comes in a few Bcf higher, such as our calculations suggests, prices could drop several cents on the number only to find buyers step in as they could potentially view forthcoming hotter weather patterns as more important bigger picture than a couple Bcf miss. If the number is strongly bearish above +61 Bcf, then stronger selling may be warranted."
Bentek Energy is also expecting a 59 Bcf build utilizing its flow model. "Demand fell from the record levels set the previous week and averaged 64.7 Bcf/d during the week, which represents a decline of 1.4 Bcf/d week-over-week. Power demand drove the majority of the loss in demand as temperatures across the Midwest and Northeast fell compared to the previous week," the company said in a report.
According to Natgasweather.com meteorologist Rhett Milne, "The most important weather factor going forward is how long hot, high pressure that's soon to become established over the eastern states lasts. We expect temperatures will be getting quite toasty by the end of next week as upper 80s to lower 90s gain ground over the Ohio Valley and Mid-Atlantic regions, including across major Northeast cities."
Wednesday's 9-cent gain has traders talking $3. "The rise favors a test of the $3 area. It looks like traders are inching closer to that and we could see it," said a New York floor trader. "I think from a technical point, traders just might get it through this time."
In overnight Globex trading September crude oil lost 33 cents to $42.97/bbl and September RBOB gasoline fell 2 cents to $1.7402/gal.