March natural gas is expected to open 2 cents lower Monday morning at $3.04 as recent FERC approvals of transportation projects have altered the trading landscape going forward. Overnight oil markets were narrowly mixed.
Given Friday's steep drop, analysts are cautious in predicting further declines, but the fundamental factors of weather and transportation continue to deteriorate for the bulls.
"Weather forecasts for heating demand continued their downward march since the beginning of 2017, losing another 12.4 gHDDs and 24 Bcf of demand for Weeks 2 and 3," said Andy Weissman, president of EBW Analytics Group in a morning report to clients.
Weissman noted that surprise FERC authorizations last week of both the Rover and Atlantic Sunrise pipelines "have changed the price outlook for natural gas in 2017. Previously, anticipated tight market conditions for 2H17 and winter 2017-2018 had been an important source of support for the front-month contract. Last week's pipeline authorizations have substantially reduced this pillar of support.
"Together with further deteriorating weather forecasts in addition seasonal declines in demand, market momentum has shifted in a strongly bearish direction. Given precipitous price declines last week, however, and strong technical support near $3.00/MMBtu, further price declines may take multiple trading sessions to materialize."
Others also see transportation issues affecting prices. "The gas market is going to continue to be sensitive to weather over the next two months," said Mike DeVooght, president of DEVO Capital. "If we continue to see warmer than normal temperatures, we will see gas trade below $3.00 in the near future. If temperature forecasts turn colder than normal, we could easily see gas test the $3.40-$3.50 level.
"Looking forward into mid 2017/early 2018, we feel the gas market is going to have a difficult time holding above the mid $3 range as take away capacity out of the Marcellus and Utica expands." DeVooght reports he liquidated his short position for trading accounts and advises them to stand aside for now.
End users should also stand aside and producers should hold the remainder of a August 2016 - July 2017 put strip initiated at $2.70 and offset with the sale of a $3.50 call option. Alternatively he suggests holding a $2.75 put strip balanced by the sale of a $3.75 call strip and paying 7 cents.
In overnight Globex trading March crude oil fell 11 cents to $53.72/bbl and March RBOB gasoline rose fractionally to $1.5571/gallon.