July natural gas is expected to open a penny higher Monday morning at $4.75 as overnight prices reach $4.88 and near-term weather forecasts turn warmer. Overnight oil markets were mixed.
In spite of the bullish argument that storage refill will be insufficient, risk managers are counseling protection from lower prices. "We have had large builds for the past six weeks helping to increase the depleted storage levels. However, levels are still 34% lower than last year at this time," said Mike DeVooght, president of DEVO Capital Management, a Colorado-based trading and risk management firm.
"U.S. domestic production continues to increase, and weather hasn't played a huge roll in either direction currently. Fundamentally, you can make a case in either direction, but for hedgers, we feel natural gas rallies near the $5.00 level should be used as an opportunity to lock in some forward pricing. On a trading basis, we will hold current positions."
DeVooght suggests that trading accounts hold on to a short July futures position initiated with the April contract at $5.00-5.10. End-users should stand aside, and producers should continue to hold the remainder of a short May-October strip from $4.20 to $4.30 as well as a second short May-October strip placed at $4.50.
Eugene McGillian of Tradition Energy said, "Gas prices have now advanced 13%, or nearly 60 cents, over the past month as severely depleted storage levels and the risk of increased air conditioning loads during the prime months of the upcoming summer cooling season provide a boost to the market.
"Robust production levels of gas and expectations of above-average storage injections in the coming weeks should provide resistance to gas market rallies in the coming days. Weather forecasts, after the next five days of above-normal temperatures across much of the East, are expected to shift slightly cooler to normal to above-normal temps during the latter part of this month," he said in a Monday morning report to clients.
Commodity Weather Group in its morning forecast is looking for near-term warmth stretching from Iowa to North Carolina. "The short range trended hotter over the weekend with less rain risks for the Midwest and East Coast this week. Temperatures surge into the lower 90s for Chicago to [Cincinnati] tomorrow and Wednesday with middle 90s into Philadelphia and mid-to-upper 90s DC (peaking Wednesday)," said Matt Rogers president of the firm.
"Even Boston and New York City are aiming for a burst of upper 80s to low 90s by Wednesday's peak before a cool front sweeps through. The latest trends for the six-10 day are back to near seasonal levels for the Midwest and East. Texas mainly sees closer-to-normal heat this week and next, while the West is generally same to cooler, but some hotter weather rebuilds for the interior in the six-10 day and maybe flirts with the coastal areas too by the 11-15. For the East, the 11-15 starts slightly cooler, but then another burst of heat may return toward the turn of the month."
In the physical market, next-day gas should be well supported at locations such as the Chicago Citygates and Tetco M-3 as Midwest and Mid-Atlantic markets heat up. The Weather Channel forecasts highs of 93 for both Chicago and Washington, DC, Tuesday.
In overnight Globex trading July crude oil gained 15 cents to $107.06/bbl and July RBOB gasoline fell fractionally to $3.0228/gal.