September natural gas is set to open 3 cents lower Monday morning at $2.85 as traders look at attractive hedging and selling opportunities and weather forecasts warm. Overnight oil markets fell.
Forecasters are calling for elevated demand in major markets this week. "Lower 48 demand will remain relatively well supported this week by persistent above-normal temps east of the Rockies," said industry consultant Genscape in a Monday morning report. "The Rockies, Midcon and Midwest regions are expected to see substantially hotter than normal temps early this week, and that system will make its way to the northeast by week's end.
"Genscape's Rockies forecast has demand testing a summer-to-date high near 1.8 Bcf/d by Wednesday. Midwest demand will climb to a forecast peak at 9.5 Bcf/d by Thursday. Demand in Appalachia and New England is expected to gradually climb toward their respective peaks on Friday at 10.8 Bcf/d and 2.24 Bcf/d...
"Western demand markets, conversely, are setting up for a reprieve from heat with temps forecast to dip below seasonal norms in California and the Pacific Northwest, and return to seasonal in the desert Southwest."
Risk managers look to use any market response to the warm weather as a hedge opportunity. The warmer than normal weather forecasts of last week into mid-August have given the market a boost, according to Mike DeVooght, president of DEVO Capital Management.
"On a trading basis, we will continue to hold our current short producer hedges. It is possible that the warmer than normal temperatures could help the market make another run at the $3 level. We would use rallies approaching the $3 level on the spot market as an opportunity to add to or initiate short producer hedges."
DeVooght currently advises end-users to stand aside, but trading accounts should sell November futures at $3.10-3.15 should the opportunity arise. Producers and physical market longs are advised to hold an August 2016-July 2017 $2.70 put strip and short a $3.50 call at flat or hold a $2.75 put and short a $3.75 call paying 7 cents.
In overnight Globex trading September crude oil fell 50 cents to $41.10/bbl and September RBOB gasoline shed a penny to $1.3126/gal.