October natural gas is expected to open 6 cents higher at $2.86 as weather forecasts through the end of the month remain moderately supportive. Overnight oil markets fell.
Market observers, however, see the market working lower as storage builds during the shoulder season.
"On 31 August, the October contract settled at $2.89/MMBtu. A week later, it settled nearly 20 cents lower," said analysts at Societe Generale in New York in a Friday report. "A bullish storage support ran the contract back up over $2.80/MMBtu yesterday. A decent amount of price variability within a short amount of time considering there was no real change in the underlying fundamentals or weather; the market seems keen to move off any small data point.
"With only 59 days between week-ended 2 September and 31 October, a current storage level of 3.44 Tcf, and a key EOS psychological threshold at 4 Tcf, the injection pace needs to average around 9.5 Bcf/d. The same time period last year saw a 12 Bcf/d injection pace. Power generation will need to hold up to keep this year's pace contained. Support can come from weather or price; we are indifferent to which, but not particularly comfortable relying on weather. We think a return to the $2.50-2.70/MMBtu range is what the market needs in order to keep some tightness in the ledger through end of season."
That injection pace might get tested this week as weather-driven demand looks soft. "Our demand forecasts for this week do not show any particular weather-driven volatility," said industry consultant Genscape in a Monday morning report. "Most regions' 30-year normals begin flipping to heating degree days this week, though forecasts suggest otherwise. Temperatures in western markets will continue to run below seasonal norms through this week, while Midwest, southeast and eastern temps will run slightly above normal, but not enough to trigger substantial cooling loads.”
Forecaster Commodity Weather Group sees somewhat higher demand as September is forecast to be moderately warm. "The latest model runs overnight gained to edge the overall assessment to marginally increased demand compared to Friday's forecast. This keeps September running on track to be a warm-dominated month.
"While Texas remains mostly soft, we see signs that the West Coast could finally heat up a bit more by the six-10 day period and again in the 11-15 day (especially on the European guidance). Given the time of year, increased pattern variability is a reasonable risk, but the low global wind gives warmer conditions the upper hand mostly," said Matt Rogers, president of the firm.
In overnight Globex trading October crude oil fell $1.00 to $44.88/bbl and October RBOB gasoline fell fractionally to $1.3594/gal.