August natural gas is expected to open 6 cents higher Monday morning at $2.92 as more deferred weather forecasts called for incrementally warmer temperatures. August crude oil probed new lows.
Forecasters see temperatures a touch warmer looking out towards the end of the month. "The latest 11-15 day period forecast is just a touch warmer than Friday's forecast over the East during the start of the period, but the roll in days offset the changes," said WSI Corp. in its morning report to clients.
Continental United States population-weighted cooling degree days “are up 0.5 for Days 11-12 and are forecast to be 65.4 for the period, which are 9.5 above average. Spread within the model guidance offers risks in either direction at this point. The GFS [Global Forecast System] offers a cooler risk across the East and South, but the ECMWF [European Model] offers a warmer risk over the South."
Risk managers are looking for western heat to support regional prices, but less so Henry Hub quotes. "Warmer weather in the West could support Western gas basis, but cooler temperatures in the East and South could continue to pressure Nymex natural gas," said Mike DeVooght, president of DEVO Capital Management, a Colorado-based trading and risk management firm.
"On a trading basis, we did get a technical rally back to the $3.10 to $3.20 level, which failed to generate any buy interest. We feel that if the nearby contract were to break the $2.80 level, we could see a quick break to the $2.60-$2.65 level. We will continue to hold our short producer hedges and will stand aside for speculators at this time."
Analysts also are seeing some parallels in crude oil and natural gas pricing. "Prices are recovering and are being led by the front end of the market, as the deferred pricing has been under a lot of pressure, and front-end spreads are recovering in line with that," said Scott Shelton, analyst with ICAP Commodities. "I find the back end of natural gas at levels that are probably too cheap, with emphasis on Summer 18 and Summer 19 with prices at $2.78 and $2.68.
"Intuitively, I don't see a lot of downside to those prices, but I also feel like natural gas reminds me of crude at $47 when it also looked 'cheap' before it went to $42. I am staying away for now and would not be shocked if good data in natural gas met with poor price action much like crude."
In overnight Globex trading August crude oil fell 33 cents to $43.90/bbl and August RBOB gasoline shed a penny and a half to $1.4836/gal.