July natural gas is set to open 3 cents higher Thursday morning at $4.58 as traders try to juggle last-minute book-squaring with the release of a government storage report that is expected to show inventory increases well above historical norms. Overnight oil markets fell.
Last week a stout 113 Bcf was injected, about 3 Bcf more than trader expectations, and three days later July futures were wallowing more than 21 cents lower. Such outsize reactions seem to be the norm these days, and the 10:30 a.m. EDT release by the Energy Information Administration will likely be closely watched for variations from market expectations that could lead to similar market gains or losses.
For the week ended June 20, the market is looking at builds in the neighborhood of just under 110 Bcf, not much different than last week. Bentek Energy's flow model predicts an increase of 108 Bcf, substantially higher than last year's 94 Bcf and a five-year average of 81 Bcf. Bentek's calculations show demand for power generation increased, but that was outdone by even greater injections.
"Demand rose slightly from the previous week, with power burn demand coming in 1.4 Bcf/d stronger week-over-week; however, Bentek's sample of injections rose slightly by a total of 2 Bcf from the previous week's tally, due largely to higher injections in the West Region," the firm said.
"Injections started the storage week extremely strong but were cut significantly within the Producing Region as total power burn demand climbed above the 28 Bcf/d mark during the week. Despite the strong power burn, injections within Bentek's sample of salt dome facilities rose by a total of 1.3 Bcf from the previous week and drove the majority of the sample increases within the region week-over-week. Bentek's sample of East Region facilities continued to post strong injections as well, with a total sample build of 45 Bcf on the week as Dominion, ANR, NNG and NGPL have continued at a strong pace for June. Last week's injection could be the last above 110 Bcf until fall, barring a break in temperatures during the peak power demand months of July and August."
Other estimates of the EIA report include Houston-based IAF Advisors at a 109 Bcf build and United ICAP at 107 Bcf. A Reuters poll of 22 traders and analysts revealed a sample average of 102 Bcf with a range of 88-112 Bcf.
Power burn is likely to remain strong if near-term weather forecasts are correct. WSI Corp. in its morning outlook predicts heat and humidity across the expansive MISO (Midwest Independent System Operator) power grid. "Seasonably warm temperatures and increasing humidity levels are expected [Thursday]. Highs may generally range in the mid 70s and 80s. A southerly flow will support warm and humid conditions during the end of the week into the weekend. Highs may climb into the upper 70s, 80s to low 90s. A cold front and stormy weather may promote a cooling trend across the northern Plains and Upper Midwest by the start of next week. However, warm and humid conditions should persist across the lower Midwest."
It added that renewable power generation in the form of modest wind output "is expected [Thursday] with output in the 2-4 GW range. An increasing south-southwest wind should cause generation to trend upward and become more favorable during the remainder of the forecast period. Output may peak near 4-6 GW."
In overnight Globex trading August crude oil fell 32 cents to $106.18/bbl and August RBOB gasoline shed a half cent to $3.0633/gal.