August natural gas is expected to open 3 cents higher Monday morning at $3.01 as forecasts of moderate warmth prove capable of keeping the bulls’ hopes alive. Overnight oil markets were narrowly mixed.
Overnight weather models were somewhat mixed. MDA Weather Services in its morning six- to 10-day outlook for clients said, "Forecast changes were in the cooler direction from mid to late period in the Midwest and East, when high pressure allows for temperatures to fall to marginally below normal levels. Prior to this, however, aboves are seen early on in the southern Midwest and South, where the forecast carries small warmer leanings compared to Friday's expectations.
"Aboves are also found in California and most of the Interior West, with exceptions being a result of the seasonal monsoon in the Southwest and upper air variability in the Pacific Northwest. Overall confidence remains at moderate levels for the period."
Scott Shelton, analyst at ICAP Commodities, said, “The market still seems to trade like crude, where the data is quickly ignored and the market is dominated by price action and weather changes. Last week's gas storage report is a perfect example. I don't know what to think here ... the market is short from the CTAs, long from the humans, and the CTAs have more money!
"I think that most natural gas P&Ls have been decimated in the chop. Intuitively, I think natural gas may look cheap in the Winter, Summer and Cal 19, but the history tells me to think lower from here, as the market still favors strong shorts over strong longs."
Confirming Shelton's observations about last week's storage report [+57 Bcf], Mike DeVooght of DEVO Capital Management in a weekend report to clients said, "The weekly storage number came in slightly lower than anticipated, but failed to be a market mover. It would not be surprising to see the gas market make another run at the $3.10-$3.20 level, but considering the warmer than normal temperatures that are already forecasted for the rest of July, it is disappointing that we did not see a strong market this past week. On a trading basis, we will hold current positions and will stand aside for speculators."
DeVooght currently has in place a hedge program for producers consisting of buying puts and selling calls.
In overnight Globex trading August crude oil fell 3 cents to $46.51/bbl and August RBOB gasoline rose a penny to $1.5673/gal.