April natural gas is set to open 2 cents lower Friday morning at $1.62 as traders see a soft weather outlook and no indication of production restraint as leading prices lower. Overnight oil markets rose.
Analysts said an extremely soft cash market is likely to lead to further declines in futures and any change in price direction will require a supply response from eastern producing basins. "Spot values at Henry Hub fell to around $1.55 [Thursday], and we view this ongoing weakening in the cash basis as suggestive of additional futures declines," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients.
"These discounts for physical product are also forcing further expansion in the carrying charges, and we still see even wider contangoes, especially within the spring-fall portion of the gas curve. The increasing possibility that storage space will eventually need to be allocated via even lower prices will continue to act as a driver of larger spot price discounts in comparison to fourth quarter futures. As the contangoes stretch, additional incentive will be provided to longer-term or investment-type speculative shorts that will realize the advantages of rolling sequentially into much higher priced futures.
"With weather-related demand expected to subside during the next few months and coal to gas displacement progressing slowly, a supply side reaction to this year's price plunge will be required in order to force a long-term price bottom. However, such a development has not been evidenced, and we will await even a minor indication of slowed output within the eastern region before considering an end to this extended bear move."
Gas buyers for power generation across the PJM footprint may have to be on their toes for weekend gas purchases as wind generation over the weekend is expected to reach only nominal levels. WSI Corp. in its Friday morning outlook said, "Low pressure and its associated snow and rain will depart and give way to a clearing trend [Friday]. It will be seasonably cold with highs in 30s to mid 40s. Another weak frontal system will drop into the power pool, with a chance of light rain and snow during Saturday into the start of Sunday, [and] a mild southerly flow will usher unseasonably warm spring like weather into the power pool next week. High temperatures may climb into the upper 50s, 60s to low 70s by Tuesday.
"Relatively light and changeable wind generation is expected during the remainder of the week into the weekend. A mild and increasing southerly wind will drive up wind gen potential during Sunday night through early next week. Output may climb 4-5 GW by Tuesday."
In its longer term 11- to 15-day forecast WSI said, "Once again, today's forecast is warmer than previous forecasts over the northern and eastern U.S. CONUS GWHDDs are down another 3.1 for days 11-14 and are now forecast to be 61.4 for the period. This is nearly 43 HDDs below average."
In overnight Globex trading April crude oil roe 54 cents to $35.11/bbl and April RBOB gasoline added 2 cents to $1.3179/gal.