November natural gas is set to open 3 cents lower Wednesday morning at $3.21 as traders start to tally what looks to be a sub-par level of heating demand in the near term. Overnight oil markets inched higher.
Forecasters are expecting above-normal temperatures south and east of a line from northern Minnesota to Southern California. "The latter part of autumn can be a very volatile period and current higher chaos levels in the 11-15 day are definitely testament to that," said Matt Rogers, president of Commodity Weather Group, in a morning report to clients.
"The overnight models generally shifted warmer after seeing cooler shifts over the past two days. The six-10 day edges slightly warmer for the Midwest to East, but also for the West where we have three days of 90 for Burbank in the back half.
"Farther north, we continue to track a very stormy pattern for the upper half of California to the Pacific Northwest. The 11-15 day may be a touch warmer at times, but we did not shift as cool as the models yesterday nor are we changing as much in the warmer direction as the latest from overnight."
For the week ending Oct. 15, the National Weather Service forecasts below-normal heating and cooling loads for major energy markets. New England is expected to see 89 combined DD (degree days), or eight fewer than normal, and the Mid-Atlantic is set to experience 77 DD, or five fewer than its normal tally. The greater Midwest from Ohio to Wisconsin is expected to take on 68 DD, or 19 under its normal quota.
Analysts see a continued low accumulation of HDDs as compressing basis and perhaps erecting barriers to further price strength. "Starting in early September we typically see the HDD count across the country begin to grow as the nation slides into fall," said Jeff Richter, president of EnergyGPS, a Portland, OR-based energy consulting and risk management firm. "However, this year has been characterized by above-normal temperatures and weak HDD growth.
"In early October this year’s deviation from normal became more pronounced as a warm spell moved across the country. Temperatures recovered slightly (more HDDs) over this past week, however the forecast...indicates another warm spell is set to hit around mid-October.
"As would be expected, the lack of HDDs across the U.S. has stifled residential/commercial gas consumption as heating demand has been slow to grow. When HDDs started to pick up in early October residential/commercial demand began to grow, moving from the 7.5-8.5 Bcf/d range up to nearly 15 Bcf/d. However, the upcoming warm spell is forecasted to drive heating back down to sub 10 Bcf/d.
"The majority of the length will be added to the Northeast and Midwest gas grids where storage facilities are nearly full. As a result, the drastic decrease in residential/commercial consumption will drive down the basis prices as [the market] struggles to move the excess gas around the system."
In overnight Globex trading November crude oil rose 9 cents to $50.88/bbl and November RBOB gasoline gained fractionally to $1.4835/gal.