June natural gas is expected to open 2 cents higher Monday morning at $4.69 as traders digest a moderate supportive weather tweak to the market, but others counsel long-term selling. Overnight oil markets were mixed.
Analyst Alan Lammey of WeatherBELL Analytics sees the U.S. natural gas industry as "at last quickly transitioning toward a more seasonably familiar 'shoulder period.' As such, weekly gas storage data should start to reply to the tame weather conditions across the nation via by larger weekly gas storage builds. This should, in theory, place some downside pressure on prices in the near term -- but this will be absolutely dependent upon the results of the weekly storage data, and of course, changes occurring in the weather patterns for the next few weeks."
Lammey sees the combined 14.1-cent drop in the June contract as "all about the changing sentiment toward gas storage. While last week's storage data was less concerning than the previous weeks in terms of being smaller builds, the overall build still wasn't adequate to refill stocks to comfortable levels. There are now 26 gas storage 'injection weeks' left to go until the start of next withdrawal season. In order for the U.S. natural gas market to achieve its storage goal of 3.5 Tcf by Nov. 1st, which is about the least amount of gas storage psychological 'comfort level' for winter, another 2,519 Bcf of working gas must be injected. For this target to be attained, weekly storage injections must average 97 Bcf per week through October," he said.
That level of injections may be challenged by gas usage to offset nuclear plant shutdowns. "According to Nuclear Regulator Commission (NRC) data, out of 100 active U.S. nuclear reactors; 17 reactors are in complete shutdown mode, which means the reactor is producing zero megawatts (MW). There are 10 reactors in partial shutdown and 73 nuclear power plants that are operational. Currently, there are about 19,370 MW of nuclear power shutdown for maintenance with an estimated natural gas replacement burn rate of about 3.9 Bcf/d in order to generate an equal amount of electricity," he said.
Risk managers see an opportune time for producer sales. "Fundamentally, it has been our feeling that the natural gas market is becoming much healthier than it has been in quite some time. But the mending process will occur over a long period of time," said Mike DeVooght of DEVO Capital Management. "The fact that natural gas rig activity has been slipping is supportive, but the lack of any significant demand upticks, is negative. On a trading basis, we feel selling the Summer above $4.50 for producers is an attractive selling level. It could be that in the future the mid to high 3s will be the new floor on the breaks. We will continue to hold our current short positions for hedges." The summer strip settled Friday at $4.687, according to DeVooght.
WSI Corp. in its morning six- to 10-day outlook shows temperatures a touch warmer. "[Monday's] six-10 day forecast is generally warmer than Friday's forecast over both the East and West Coasts. The south-central states look a bit cooler but is due to a shift in the period. Confidence in the forecast is considered near average standards as models show reasonably good large-scale agreement during the period."
Risks to the forecast include warmer temperatures in the East "under a building warm ridge. There are some colder risks to the forecast over the coastal Northeast if a backdoor cold front is stronger than anticipated mid period. Slight colder risks are also in store for the desert Southwest early if a Pacific trough pushes further southward than anticipated."
WSI forecasts the high Monday in New York of 67 will slip to 66 Tuesday and 63 Wednesday. The seasonal high is 67. Chicago's Monday high of 55 is seen rising to 62 Tuesday and 81 on Wednesday. The normal early May high in the Windy City is 68.
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile is looking for the market to test last week's value area at $4.840 to $4.742. He then expects a test of $4.636 to $4.542.
In overnight Globex trading June crude oil rose 40 cents to $100.16/bbl and June RBOB gasoline shed a penny to $2.9323/gal.