August natural gas is set to open 3 cents lower Friday morning at $3.01 as overnight near-term weather models moderated, and traders see little in the way of upside potential. Overnight oil markets eased.
Weather forecasts were tempered based on overnight data. "[Friday's] six- to 10-day period forecast is generally cooler than yesterday's forecast, except across Texas and the southern U.S.," said WSI Corp. in its morning report to clients. Continental United States population-weighted cooling degree days (CDD) “are down 2.7 to 59.8 for the period, which are 4.8 above average.
WSI says there are risks in either direction at this point. The South-central U.S,. including ERCOT could run a bit hotter based on the ECMWF [European] guidance, it said.
Analysts who missed Thursday's storage build might want to look closely at power burn. Industry consultant Genscape Inc., noting Thursday's thin storage build of 28 Bcf, commented that "relative to last week, total power generation grew about 27 AGWH (average gigawatt hours) driven by an increase of +6 CDDs as well as the impact of the July 4th holiday in the prior week. Almost all of the increase in gen is coming from thermal sources (gas and coal), as overall generation from renewables remained relatively flat (wind generation increased about 2.7 AGWH w/w while collectively hydro and solar generation fell by about that same amount as hydro continues seasonal declines).
Gas burn and coal accounted for +16 and +10 AGWH of generation respectively with the total w/w increase in gas burn totaling about 22.3 Bcf, Genscape said.
Traders are looking to play the market strictly from the long side, although are currently standing aside. "We have suggested a shift to the sidelines and off of a bullish stance for now but will look to re-establish longs into the September contract on a further price decline into the $2.92-2.95 zone," said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients. "We viewed yesterday's storage injection as bullish and we see another two to three weeks of surplus contraction per the EIA releases. And although the weather factor will begin to diminish in importance next month, we feel that a broad-based sustainable hot spell could reduce supply overhang to less than 100 Bcf in keeping the market highly sensitive to any unexpected supply disruptions prompted by tropical storm activity or pipeline issues.
"But from a longer term perspective, we are still having difficulty constructing a scenario that would push values much more than 20 cents from current levels in either direction even when extending a view out through the end of next month."
Tom Saal, vice president at FCStone Latin America in Miami in his work with Market Profile says to look for the market to test Thursday's value area at $3.093 to $3.057 before testing $2.939 to $2.923. He says the market could also test the week's 50% breakout target at $3.144.
In overnight Globex trading September crude oil fell 34 cents to $46.58/bbl and September RBOB gasoline fell fractionally to $1.5630/gal.