June natural gas is expected to open 3 cents lower Wednesday morning at $3.19 as traders factor in almost non-existent weather conditions along with a deteriorating technical environment. Overnight oil markets were mixed.
Overnight weather models offered little in the way of anything traders could sink their teeth into. "The only part of the country seeing more stable and sometimes stronger heat over the next two weeks is the Pacific Northwest," said Matt Rogers, president of Commodity Weather Group, in a morning note to clients.
"Other areas experience some warmer to hotter volatility at times, but nothing durable, with closer to normal or cooler outcomes being more common. We continue to track a fairly notable split between the European and American ensemble guidance for the six-10 day with the European running much cooler from the Midwest to the South, while the American aims hotter for the Pacific Northwest in contrast."
In more quantitative terms, data from the National Weather Service (NWS) confirms the diminishing weather component, at least temporarily, on heating and cooling demand for major East and Midwest energy markets. For the week ending May 27, New England is expected to see a combined 41 degree days (DD), or seven fewer than normal. New York, New Jersey and Pennsylvania are expected to deal with all of 22 DDs, or 21 fewer than normal, and the greater Midwest from Ohio to Wisconsin is predicted to experience 35 DDs, or 20 fewer than its normal seasonal tally.
Given Tuesday's 11-cent plunge in the June contract, market technicians are wondering if bigger changes might be afoot. "Are we witnessing the onset of a summer-to-fall seasonal decline?" queried Brian LaRose, a market technician at United ICAP. LaRose points out if that is the case, prices could drop into the low $2 area.
In the meantime, the bears have a lot of work to do. According to LaRose's figures, the market needs to trade decisively lower by another 6 cents and ultimately fall another 10 cents beyond that. "Have no case for the start of a seasonal slide otherwise," he said in closing comments Tuesday.
Estimates of this week's storage build continue the decline in the year-on-five-year surplus. The Desk in its Early View storage survey of 12 traders and analysts found an average of 69 Bcf, below last year's 71 Bcf increase and a five-year average build of 90 Bcf.
In overnight Globex trading July crude oil fell 22 cents to $51.25/bbl and July RBOB gasoline rose fractionally to $1.6593/gal.