June natural gas is expected to open 5 cents higher Monday morning at $4.46 as traders see a modest warming trend over major population centers. Overnight oil markets firmed.
Risk managers continue to stay the course with short hedges. "Production remains strong; demand is relatively flat and mild temperatures throughout the majority of the U.S. do not support higher gas prices," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.
"However, rig counts and storage levels are well below last year's levels and the gas market continues to show signs of strength. Fundamentally, the natural gas market is becoming healthier. 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 3's will be the new floor on the breaks. We will continue to hold our current short positions for hedges."
DeVooght suggests that trading accounts hold on to earlier shorts established when April was trading at $5.00 to $5.10, and end-users should stand aside. Those with exposure to lower prices should continue to hold short the balance of a May-October strip from $4.20 to $4.30 and also hold short a summer strip from $4.50. The summer strip settled at $4.407 Friday, according to DeVooght.
Forecasters are seeing warmer temperatures in their near-term forecasts. WSI Corp. in its morning six- to 10-day outlook shows progressively rising temperatures. "[Monday's] forecast has trended warmer over the northeastern two-thirds and cooler over the Northwest when compared to Friday's forecast. Forecast confidence is considered just above average standards as models show fair agreement but with technical differences."
The risks to the forecast are "over CAISO under another building subtropical warm ridge. Slight warmer risks are in place over MISO [Midwest Independent System Operator] early, followed by much of PJM later in the period if the latest GFS [Global Forecast System] model solution is correct with the placement of a progressive warm ridge."
WSI forecasts the highs next week in New York City will range from 78 to 82 degrees, well above the normal of 74. Chicago is expected to see highs from 75 to 85, also well above its seasonal norm of 73.
In its Early View storage survey, Energy Metro Desk calculated a build of 105 Bcf for the week ended May 16. Last year and the five-year average stand at 90 Bcf.
In overnight Globex trading June crude oil rose 65 cents to $102.67/bbl. and June RBOB gasoline rose by a penny and a half to $2.9885/gal.