November natural gas is expected to open 2 cents lower Friday morning at $2.43 as traders continue to digest a storage dynamic that features ongoing burdensome inventories. Overnight oil markets rose.
Natural gas storage now stands at 3,733 Bcf and is already 122 Bcf above last year's injection season high of 3,611 Bcf, while just 196 Bcf below the all-time record storage level of 3,929 Bcf, which was set for the week ending Nov. 2, 2012. With at least three or four more injections expected this season based off of historical injection cycles, 2015 storage levels are likely to eclipse the 2012 record high and threaten the mythical 4 Tcf mark.
Despite the bearish storage report Thursday, analysts still see spot futures migrating back up to as high as $2.70. "[W]ith weather slowly materializing, power loads strong and production soft, we see support for the contract to move back into our target $2.55-2.70/MMBtu price range through end-month, in spite of [Thursday's] bearish report," said Breanne Dougherty, an analyst with Societe Generale in New York. "Our attention now shifts to November. The current December/January premiums over the front-month will shrink, but the dominant direction of the convergence hinges on when (if?) the 4Q production uptick materializes, and weather.
"We see more upside price risk relative to today between now and early December, but would not want to hold much $2.80-plus/MMBtu exposure on core winter contracts beyond that point given the risk of a mid-winter downward price correction in anything other than a cold weather scenario [El Nino?].
"There is no denying that domestic production continues to be the dominant wildcard for near-term fundamentals. While our 14-month production outlook is relatively flat, the view has two distinct parts to it. The first is tied to the current and immediate-term daily production trend; the second, to the larger more structural story line that has emerged this year," she said in a Thursday note to clients.
Gas buyers for power generation across the PJM footprint will have a combination of cooler temperatures and hefty wind generation to deal with as they make, or don't make, purchases over the weekend. WSI Corp. in its Friday morning report said, "A cold front will slide across the power pool [Friday] with a slight chance for a few showers. A brisk northwest wind behind this system will usher unseasonably cool high pressure and the coldest air of the season into the power pool during the weekend into the start of next week.
"A west-northwest wind behind the cold front will continue to support elevated wind generation today into early Saturday morning. Output is forecast to range 3-4 GW. Wind gen will decrease and become light during the weekend, but a moderating southerly flow will drive up wind gen output early next week. Output is forecast to climb back to near 4 GW."
In overnight Globex trading November crude oil gained 37 cents to $46.75/bbl and November RBOB gasoline rose a penny to $1.3165/gal.