July natural gas is set to open unchanged Friday morning at $4.70 as the technical case for higher prices gains new momentum and tropical storm development is on the table. Overnight oil markets rose.
In spite of a plump 119 Bcf storage build reported Thursday, analysts are maintaining their bullish posture. "Markets are always forward looking, and natural gas will be attempting to accurately assess summer temperature trends and the extent of additional production increases in looking across this month," said Jim Ritterbusch of Ritterbusch and Associates.
"Given the magnitude of the current supply shortfall, we feel that any bearish surprises on either the supply or the demand front will be taken in stride and will have only limited downside impact on the market. But on the other hand, the first major sustainable hot spell or even minor production disruptions will have an outsized effect in pushing prices appreciably higher. While fresh four-week highs reinforced our expectations for a push up to the $4.85 area, we feel that a $5 print is easily attainable if several bullish forces align, such as an early start to a hot summer, an active hurricane season, etc."
Technical analysts see renewed vigor for the bulls. "Bearish case, the ABC advance off the $4.289 low is morphing into an ABCDE pattern. Bullish case, the $4.289 low marked the start of a renewed up trend," said Brian LaRose, a technical analyst with United ICAP. "[We] Peg $4.805-4.856 as the highest levels consistent with an ABCDE rising wedge. Fail to carve out a top from this band of resistance and our trend will shift to 'up.' [We] see room to 5.089-5.121, potentially even 5.310-5.357 in this case," he said in closing comments Thursday to clients.
The National Weather Service (NWS) in its 8 a.m. EDT Friday report said there was little change in showers and thunderstorms associated with a low-pressure system in the southern Bay of Campeche. It said upper-level winds made conditions unfavorable for "significant development." Nonetheless, NWS raised the probability of storm formation to 50% over both the succeeding 48 hours and five days, up from 30% on Thursday.
Meteorologists see the system developing into a storm. "The slow-moving tropical disturbance in the southern Gulf will drift west to northwest this weekend and is likely to develop into a tropical cyclone, but stay away from U.S. energy interests," said Joe Bastardi of WeatherBELL Analytics in a Friday morning report.
Shoulder season demand can create problems of its own, and Genscape reports that several pipelines have issued imbalance warnings for the weekend. "Due to forecasted lower system demand this weekend, Tetco has limited operational flexibility to manage imbalances, and Maritimes and Northeast [pipeline] is requiring all delivery point operators to keep actual daily takes out of the system equal to or greater than scheduled quantities regardless of their cumulative imbalance position starting 9 a.m. Saturday."
It added that Tennessee "is issuing an imbalance warning for Zone 0 South of Station 1, [and] Algonquin requires all delivery point operators to keep actual daily takes out of the system equal to or greater than scheduled quantities regardless of their cumulative imbalance position starting 9 a.m. Saturday also."
In overnight Globex trading July crude oil added 47 cents to $102.95/bbl and July RBOB gasoline rose a half cent to $2.9595/gal.