July natural gas is expected to open 2 cents higher Tuesday morning at $4.63 as traders balance near-term weather and a healthy cash market with an expected plump storage injection in Thursday's inventory report. Overnight oil markets were mixed.
Analysts see something of a disconnect between Monday's 7-cent rally and current fundamentals. "[A] market such as this in which a huge supply deficit exists will always be able to offer some occasional 1-2% price rallies on negligible fundamental inputs," said Jim Ritterbusch of Ritterbusch and Associates. "Furthermore, speculative entities have recently been rotating back toward the short side of the market and some covering with the start of a new month may have spurred some of today's gains. Unless the temperature views that stretch out to about mid-month shift, we don't expect last week's highs at the $4.66 area to be violated during the next couple of sessions.
"Additionally, Thursday's usual price volatility could be downsized a notch as the exit from the shoulder period will enable the market to tolerate small misses of around 4-5 Bcf with more focus shifts to the weather factor. We are expecting an injection of 107 Bcf on Thursday, a figure proximate to last year and larger than the 5 year average by about 14 Bcf. Some early estimates suggest that our expected figure will be toward the low side and hence could receive a bullish reception. In any event, we would suggest maintaining any recently established longs but we would suggest adding to bullish holdings on pullbacks to around [Monday's] lows that might develop prior to Thursday's release."
Current market strength appears in part derived from supportive near-term weather and a robust physical market. AccuWeather.com forecasts the high in Chicago Tuesday at 79 and New York 84, both above average, but further out things begin to cool off. WSI Corp in its morning 11- to 15-day outlook said the "period forecast is cooler across the interior West in through the Plains and Great Lakes region late in the period when compared to [Monday's] forecast. Forecast confidence is considered near average standards as a result of reasonably good large-scale model agreement."
It did admit that "There are some slight warmer risks to the forecast over PJM in through the Northeast under a building warm ridge, however there is risk across the coastal Northeast for a back-door cold front passage."
WeatherBELL Analytics in a morning report said "Any development over the Gulf will be slow over the coming week to 10 days."
"Until the ECMWF [European model] is aboard with this, I am reluctant to jump on the GFS [Global Forecast System] storm idea. The ECMWF Weekly outlook shows an enhanced chance of tropical development in the Atlantic coastal waters, but not until Weeks 3 and 4," said WeatherBELL meteorologist Joe Bastardi.
If the methodology of Market Profile proves correct, prices in the near term will work lower before advancing. Tom Saal, in his work with Market Profile says to look for the market to test Monday's value area at $4.586 to 4.540 before moving on and testing $4.810 to $4.754. He says for "Buyers-be-ready, [and] strength appears to be building on the back years: Cal'15, Cal'17 and Cal'19."
In overnight Globex trading July crude oil added 9 cents to $102.56/bbl and July RBOB gasoline lost a half cent to $2.9429/gallon.