August natural gas is expected to open a penny lower Friday morning at $4.43 as traders see only limited market support from forecast warm weather, and admit that new downside technical parameters are in play. Overnight oil markets were narrowly mixed.
According to market analysts, summer heat better show up soon if the market is going to have any chance of even recovering to earlier highs. "The [Thursday storage] report strongly suggested further production strength into record territory and a larger than expected shift away from gas usage and toward coal by the utilities. While we usually caution against reading too much into one weekly report, we will advise that [Thursday's] larger than anticipated injection furthered a trend that extends about two months," said Jim Ritterbusch of Ritterbusch and Associates.
"It would appear that some structural shifts are beginning to develop on both sides of the supply-usage balances that could ease supply concerns considerably, at least until a sustainable hot spell shows up within the forecasts. While current one- to two-week views are favoring some hot temps, the above-normal trends are largely limited to about the eastern third of the nation and are not packing enough punch to spur either speculative or commercial buying interest.
"Although July narrowed its discount against August futures by a slight margin, we viewed the pre-expiry plunge to below the $4.40 level as technically significant. [Thursday's] July futures low of $4.35 now provides a new downside price parameter [target] for the August contract. By and large, the fundamental inputs of late combined with some significant chart deterioration are forcing us to temper our bullish inclinations. Any existing longs would be advised to employ any rebounds back to today's highs of $4.60 as an opportunity to liquidate."
Market technicians now see the bears as being firmly in control. "Will the lows of the outgoing July contract mark the end of an ABC off the $4.891 high (Aug)? Or will the August contract be able to pick up right where the July contract left off?" said Brian LaRose, a market analyst with United ICAP.
"If the bears can maintain control, and we think they can, there is still room down to $4.302-4.242-4.198 ("a"="c"), even $3.937-3.871-3.848 (1.618 "a"="c") before any chance of seasonal bottoming action," he said in closing comments Thursday to clients.
In its morning outlook, Natgasweather.com said it is looking for pervasive warm temperatures. "High pressure has started to surge into the Midwest and Northeast and with it will come warmer temperatures. There have been discrepancies in national forecasts regarding how a chilly weather system moving into the northern Rockies influences weather conditions over the Midwest and Northeast next week. No worries; the ridge will do a fine job of stalling and deflecting it into southern Canada.
"That is not to say the Midwest won't get a glancing blow with several degrees of cooling, but the more intense cold air will remain Canada. After this nuisance system quickly departs late next week, high pressure will rapidly expand and cover much of the U.S. with very warm to hot temperatures as widespread 90s cover many regions."
In overnight Globex trading August crude oil fell a penny to $105.83/bbl and August RBOB gasoline added a penny to $3.0731/gal.