September natural gas is set to open 5 cents lower Friday morning at $2.80 before Monday's contract expiration as traders see weather conditions fully priced into the market and note a technically overbought condition. Overnight oil markets fell.
Short term, analysts are looking for the recent price advance to run its course. "[W]e believe that the weather forecasts have been fully priced. Additionally, the market has moved into technically overbought territory, at least on a short-term basis," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients. "And while some tropical storm activity has forced some hurricane premium into the market, we look for the futures to demand clearer evidence of some production disruption before offering much additional support.
"While [Friday's] option expiration could crank up volatility a notch, recent such expirations haven't offered significant pricing clues. And looking ahead to Monday's September futures expiration, a healthy supply surplus should preclude any independent strength unless weekend updates to the weather views offer some major shifts. In the background, we see production becoming a larger factor across the upcoming shoulder period, with output showing an appreciably stronger pace than previously expected as rig counts maintain a strong upward trend."
Gas buyers for weekend and Monday power generation in ERCOT should have a relatively easy time. "Stormy and cooler than average temperatures expected," said WSI Corp. in its Friday morning report. "A wet and cool period is expected through the remainder of the week into the weekend as a tongue of tropical moisture plumes into the region from the Gulf of Mexico.
"Temps only expected to rise into the 80s and lower 90s. Total precip 0.25-1 inch. Some areas over the coastal Southeast could see up to 2 inches. Modest wind gen [Friday] as output peaks near 6 GW. Flow is expected to reduce over the weekend, limiting wind gen."
At 8 a.m. EDT the National Hurricane Center (NHC) was following a disturbance in the north-central Gulf of Mexico. The feature was expected to move onshore Texas over the weekend and was given a 10% chance of tropical storm development in the succeeding 48 hours.
An area of weak low pressure over eastern Cuba north to Bermuda has a 20% chance of tropical storm development in the succeeding 48 hours.
Now Tropical Storm Gaston has weakened to 65 mph winds and was 1,030 miles east of the Leeward Islands. It was headed northwest at 17 mph and NHC continued to project its course to be heading east of Bermuda.
In overnight Globex trading October crude oil fell 5 cents to $47.28/bbl and October RBOB gasoline fell a penny to $1.4166/gal.