September natural gas is set to open 3 cents higher Wednesday morning at $2.64 as traders factor in a re-emergence of hot, humid weather next week, even while conceding that the peak of extreme weather-driven demand has liked passed. Overnight oil markets were mixed.
In a noon update, Natgasweather.com expected a modest break in the intense heat under an upper level ridge over the weekend, but by next week it expects hot weather and elevated heat indices to regain the upper hand. As the month progresses, "nat gas demand should be expected to ease, resulting in larger builds week over week as the period of peak daytime heating shortens considerably while production again looks to remain fairly strong.
"Essentially, time will have soon run out on the potential for intense widespread summer heat, which could be viewed as trending bearish on weather sentiment. Overall, still expect swings in nat gas demand over the next two weeks as the hot upper ridge that's been dominating much of the country this summer pulses in strength, but remains intact, but then gradually weakening toward late August."
It was just that expectation that drove prices lower Tuesday. "The natural gas market came under heavy selling on Tuesday in anticipation that a seasonal cooling trend will undercut power sector demand to meet air-conditioning loads in the weeks ahead," said Tim Evans of Citi Futures Perspective.
Evans is looking for a build of 17 Bcf in this week's storage report, and if his figures are correct, the current year-on-five-year surplus of 464 Bcf will shrink to 299 Bcf by August 26 "with open-ended potential for it to extend the trend beyond the horizon of our specific forecast."
Tom Saal, vice president at FCStone Latin America LLC in Miami in his work with Market Profile expects the market to test Tuesday's value area at $2.678 to $2.614 before moving on and testing $2.751 to $2.719. Saal places the week's initial balance at $2.758 to $2.612 and according to Market Profile methodology price movement through the high end of the initial balance should be bought, and conversely a break through the lower end of the initial balance should be sold. Saal places trading objectives higher at $2.831 and lower at $2.539.
In overnight Globex trading September crude oil fell 12 cents to $42.65/bbl and September RBOB gasoline rose fractionally to $1.3508/gal.