August natural gas is set to open 10 cents lower Monday morning at $4.31 as traders see nothing on the weather horizon to support near-term prices. Overnight oil markets slumped.
Commodity Weather Group in its six to 10-day outlook calls for mostly normal temperatures across most of the country although some above-normal temperatures are expected in the Pacific Northwest and portions of Texas.
"The modeling over the holiday weekend bounced around a bit between hotter and cooler solutions, but for the most part, there seems to be more of a trend toward the cooler direction for especially the Midwest to East with some hotter risks at times in the South (especially Texas) and West," said Matt Rogers, president of the firm.
"Analog comparisons to the evolving pattern seem to suggest more shifts toward 2009 (our last developing El Nino summer) for the first time, but the situation is still somewhat noisy. We were very cautious of the hotter trends in Texas given model hot biases there in recent weeks, and our upper 90s to near 100 F in Dallas is cooler than some guidance. The European modeling is cooler than our outlook in the Midwest, especially for the six-10 day, and we increase the cool risk there. The East Coast still looks somewhat bouncy, but heat risks are still very short-lived (just a few days here and there) with offsetting cooler periods again, too."
Outside of a small disturbance off the Carolinas, the Atlantic and Caribbean are calm.
Risk managers see the market landscape skewed to the bears. "Natural gas settled lower across the board. Gas has been steadily moving lower after failing to push above key resistance ($4.80) earlier this month," said Mike DeVooght, president of Colorado-based DEVO Capital.
"At week's end, we were approaching the bottom side of its recent trading range. Gas has been under pressure the past couple weeks, primarily because of higher than anticipated storage injections and the lack of any significant cooling demand. Many that have become bullish on gas prices have done so because they anticipate ending the summer at historically low storage levels.
"That may very well be the case if we don't have a cool summer, but if we do, we will start to see the deficit continue to tighten, which will take wind out of the short-term bull sails. To have a substantial bull market, we feel we need to see an uptick in demand to offset the steady production increase we are experiencing in the U.S. We could see short-term weather-related spikes, but we still feel selling rallies above $4.50 for producers is an attractive forward selling level," he said in a note to clients.
DeVooght advises trading accounts and end-users to stand aside. Producers and those with exposure to lower prices should hold the balance of a short summer strip at $4.20 to $4.30 as well as the balance of a second short summer strip initiated at $4.50.
The remainder of the summer strip settled at $4.398 Thursday.
Technically, most traders see the market stuck in a broad $4.25 to $4.75 trading range, but market technicians see the bottom end of that range under attack in spite of Thursday's modest advance. "With our A=C objective from the $4.891 August high [June 16] within striking distance we will be watching intently for any signs of bottoming into the $4.302-4.242 ("a"="c") vicinity," said Brian LaRose, market analyst with United ICAP. "That said, it is very early to be looking for a seasonal cycle low. Expect a further decline to $3.963-3.937-3.871-3.852-3.848 (1.618 "a"="c") into August if $4.302-4.242 can not provide support."
In overnight Globex trading August crude oil fell 17 cents to $103.89/bbl and August RBOB gasoline shed a penny and a half to $3.0050/gal.