June natural gas is expected to open 2 cents higher Tuesday morning at $4.45 as traders sense a slight oversold condition and weigh the prospects for a more active storage refill. Overnight oil markets rose.
Analysts see Monday's retreat as indicating a broad shift of market perception. "The furthered weakness in this market reflects a significant shift in trader perception in which the bullish static influence of low absolute supply levels has been replaced as of last week by the dynamic influence of larger-than-expected supply injections," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday to clients.
"These storage builds are likely to prove larger than normal from here on out. While this Thursday's EIA report will likely show deficit contraction of only about 10-15 Bcf against averages, we feel that a much larger narrowing in the supply shortfall will be forthcoming beginning next week when triple-digit builds should become the norm rather than the exception. A strong bullish argument can still be presented since season-ending supply will still have difficulty meeting minimal pre-winter needs of around 3.5 Tcf. But supply concerns have been significantly tempered amidst increasing optimism that production will now begin accelerating into new record-high territory with the Marcellus spurring much of the upswing."
Weather forecasts call for conditions that are unlikely to have much impact on both usage and storage. Commodity Weather Group in its morning six- to 10-day forecast shows normal temperatures throughout the country with the exception of above normal temperatures in portions of the Texas Panhandle and a small section of northern California. "The short-range outlook continues to track an impressive late-season cool push that is dropping through the Midcontinent and offering lows in the 40s as far south as Dallas and Atlanta with lows in the 30s at peak intensity for Chicago. At the same time, impressive heat targets the West Coast with low 100s for Sacramento and Burbank on the hottest day, Thursday, with a 90-degree hit on Portland [Wednesday]," said Matt Rogers, president of the firm.
"Beyond this week, though, the modeling seemed slower today in re-warming the Midwest, South and East. The delay in warming may add a few heating degree days due to cooler overnights, but then we lose some cooling degree days too, so the changes today are generally minor in a low-demand situation. The West Coast and Southwest could start getting hotter again in the 11-15 day after a six-10 day break."
Tom Saal of INTL FC Stone in his work with Market Profile looks for the market to test Monday's value area at $4.475 to $4.445 before moving on and testing $4.535 to $4.509. "Eventually" he expects a test of $4.789 to $4.731.
In overnight Globex trading June crude oil gained 65 cents to $101.24/bbl and June RBOB gasoline tacked on a penny to $2.9260/gal.