April natural gas is expected to open 4 cents higher Monday morning at $3.12 as traders factor in uncertain but cooler weather patterns and the market continues to exhibit technical strength. Overnight oil market eased.
Overnight weather models turned cooler but showed a high degree of variability. "Forecast changes were in the cooler direction across the Eastern Half when compared to Friday’s expectations, with cooler adjustments seen in parts of the Midwest and East versus the Sunday report as well," said MDA Weather Services in its Monday morning six- to 10-day outlook.
"Like in the nearer term, this period is expected to remain an active and stormy one across the Southern Half and in the East, and models continue to show volatility and disagreement as it relates to disturbances tracking across these areas. As a result, confidence is lower than usual within the day-to-day details; however, a prominent Pacific flow leaves this period warmer than normal nationally.
"The Euro models offer cooler risks around the Great Lakes at mid-period, [and] both GFS and the Euro are cooler in the Northeast while offering a mix of risks in the West.”
Risk managers look for current market strength to subside. "After Monday’s rally, gas traded in a choppy two-sided range for the balance of the week," said Mike DeVooght, president of DEVO Capital Management, a Colorado-based trading and risk management firm. "The weekly storage number failed to be a market mover when the draw came in as expected.
"On a trading basis, we continue to look for the market to run out of steam in the $3.05-3.10 level on the spot market. We think there is a good chance that we could test the lows of late February in the next few weeks. We will hold current short positions for producers and will look to sell May at $3.15-3.20 for speculators."
DeVooght says trading accounts should sell May at $3.15-3.20, but end-users should stand aside. Producers and physical market longs should continue to hold the balance of an August 2016-July 2017 put strip at $2.70 offset with the sale of $3.50 call options. Alternatively a $2.75 put strip of the same duration could be utilized countered with the sale of a $3.75 call paying 7 cents.
Tom Saal, vice president at FCStone Latin America LLC, in Miami in his work with Market Profile says to expect the market to test last week's value area at $3.071 to $3.015 and "maybe" test $2.184-2.762 and $3.253-3.128. "Remember, only participating futures market traders can influence the futures price…in the futures market. [A]ll other people (i.e., media and non-participating physical traders) are only spectators with an opinion," he said.
In overnight Globex trading May crude oil fell 53 cents to $47.44/bbl and May RBOB gasoline fell a penny to $1.6085/gal.