June natural gas is expected to open 6 cents lower Monday morning at $3.36 as traders factor in a lack of a discernible pattern to heating and cooling requirements and see a market ripe for reducing price exposure. Overnight oil markets soared.
Overnight weather models turned cooler for eastern energy markets." The forecast comes in cooler versus Sunday across the eastern half despite a mid-period round of warmth," said MDA Weather Services in its morning six- to 10-day outlook. "Some of the cool change stems from high pressure bringing temperatures down to normal in the Northeast at the onset of the period. As the high moves out and a cold front approaches from the West, temperatures return to above/much above normal levels mid-period before moderating again late.
"Meanwhile, cooler conditions are noted in the Midcontinent, but the forecast is not as cool as model guidance. The West is warm, with much aboves in California through mid-period and the Northwest late."
Heating loads for the week are expected to be sharply below normal. The National Weather Service (NWS) predicts that for the week ending May 20 New England will experience 31 heating degree days (HDD), or 29 fewer than normal. The Mid-Atlantic will see 19 HDDs or 27 fewer than normal, and the greater Midwest from Ohio to Wisconsin is forecast to have just 10 HDDs, or 41 fewer than its normal seasonal tally.
Cooling loads are just the opposite. NWS forecasts that New England will experience 19 cooling degree days (CDD) or 18 more than normal. The Mid-Atlantic will see 27 CDDs, or 22 more than normal, and the greater Midwest from Ohio to Wisconsin is forecast to experience 32 CDDs, or 20 more than its seasonal norm.
Early expectations are for the week's storage build are to come in well below seasonal norms. In its Early View survey The Desk found an average 59 Bcf in a survey of 12 traders and analysts. Last year 71 Bcf was injected and the five-year average comes in at 87 Bcf. The range on the survey was 52 Bcf to 64 Bcf.
Risk managers see now as the time to strike to lay in producer hedges. "There is a lot of technical resistance at current levels; however, it may try and test new highs near $3.50," said Mike DeVooght, president of DEVO Capital, in a weekly report to clients. "Supplies are more than adequate and demand is up ticking slightly because of firm electricity demand. That being said, we would use the current rally to add to hedges if necessary.
"On a trading basis, we have reached current levels of $3.40-3.50 to add producer hedges through year end and through the Winter of 2018
In overnight Globex trading June crude oil jumped $1.64 to $49.48/bbl and June RBOB gasoline rose 4 cents to $1.6128/gal.