April natural gas is set to open a penny higher Friday morning at $4.39 as traders mull a big-picture seasonal temperature outlook and factor in low inventory levels and an uncertain storage refill. Overnight oil markets were mixed.
Forecasters are still calling for a cool temperature regime in the East and Midwest, but they admit to a high degree of variability in the models. "A potential late-winter storm system for the eastern Midwest and Mid-Atlantic early next week is leading to some demand gains in the forecast for next week as precipitation on Monday cools high temperatures and lingering snow pack issues could slow the next warm-up toward the middle of next week," said Matt Rogers, president of Commodity Weather Group, in the firm's Friday morning report to clients.
"Otherwise, we are still tracking a challenging mixed flow big picture pattern with both colder and warmer pattern influences still mixing things up over much of the U.S. We saw some warmer changes in the Southwest and California in the six-10 day, but even they still cool down later in the six-10 day and during the 11-15. The models continue to go back and forth on the degree of cooling potential in the 11-15 day. The safest cooler-to-colder areas are still the Midwest to Northeast, but even these areas probably see variability."
At WeatherBELL Analytics, Thursday's price drop was considered a function of overall seasonal trends and essentially undisturbed by the bullish 195 Bcf storage draw. "In spite the impressively bullish storage data, prices continued to erode lower amid the markets insistence on sticking with the seasonality of the contract rather than trading off of notably bullish underlying fundamentals," said analyst Alan Lammey. "I have an idea that the bottom is near and that once the $4.20s is achieved, prices will begin to rebound back toward the $4.70s (or perhaps higher) in the weeks ahead."
His figures show that early estimates for next-week's storage report are between 54 Bcf and 59 Bcf. "My model for the gas storage 'carry-out' at the end of March is somewhere in the 840 Bcf to 860 Bcf range.
"Bigger picture technical indicators for April natural gas [show] key support for April gas resid[ing] solidly near the $4.40 to $4.35 area. If violated, look for sellers to test the $4.25 to $4.20 zone, which is considered major support. Because of the vast amount of bullish catalysts and remaining 'unknowns' of the balance of winter, not to mention the potential for summer demand forecasts, it's not likely that prices will trade lower than the $4.20 to $4.10 area for quite some time to come. Key resistance for the April is seen between $4.40 and $4.50, followed by $4.66, $4.74 and $4.799."
Others admit that traders also are focusing on seasonal trends but see a less robust storage build than might be expected. "For now, traders appear focused on the anticipated drop in seasonal demand during the upcoming shoulder season and expectations for record production of gas this year," said Addison Armstrong of Tradition Energy. "But a heavier-than-normal spring nuclear power plant maintenance and refueling schedule, plus the lowest storage levels since 2003 should provide support for prices. Weather forecasts, after the next week of below-normal temperatures, have shifted slightly warmer for the latter part of this month and the early part of April for Texas and Southeast, while the Midwest and Northeast should continue to see below-normal temperatures."
In overnight Globex trading April crude oil rose 43 cents to $98.63/bbl and April RBOB gasoline eased fractionally to $2.9314/gal.