August natural gas is seen 4 cents lower Friday morning at $3.81 as traders doubt any sustained staying power to Thursday's response to a bullish inventory report. Overnight oil markets were mixed.
To some traders, Thursday's 8.5-cent gain following the release of a somewhat smaller than anticipated storage build seems about right, but whether it can carry forward is a different question.
"[W]e are suspect of the ability to maintain [Thursday's] modest gains without major assistance from some warming in the temperature forecasts," said Jim Ritterbusch in closing comments Thursday to clients. "As seen on numerous occasions, a significant miss in weekly storage data can be easily overshadowed within 10 or 12 hours by changes to the one- to two-week temperature outlooks. So far, we are not seeing much shift with the six-10 day forecasts that are advising significantly below normal trends across a broad chunk of the Midcontinent with deviations in some regions exceeding 15 degrees."
With cooler than normal temperatures dominating the trading landscape, the coast seems clear for additional hefty storage builds, possibly landing ending inventories close to last year's 3,816 final tally. "The prospect of an additional two and maybe three larger than normal supply injections will tend to restrict additional upside follow through. Although the August contract may be able to fill last Monday's downside price gap between 3.89 and 3.93, a further extension of gains would appear unlikely. [Friday's] trade will likely provide some price consolidation largely within today's parameters with next the significant price swing deferred until Monday when weekend updates to the temperature views will need to be priced in. While [Thursday's] price advance tightened the front switch in virtually erasing a modest 1 ½ cent contango, we expect a carrying charge to be reestablished ahead of Tuesday's August contract expiration," Ritterbusch said.
"All in all, we are maintaining a bearish stance as we feel that a 5-6 Bcf miss in the storage data from average street ideas isn't capable of offsetting an unusually cool summer that is showing no sign of completion. We will also note a potential need to begin subtracting some storm premium as Caribbean wave activity has been quiet thus far during this hurricane season."
WSI Corp in its Friday morning outlook shows substantially below normal temperatures extending from Colorado to Connecticut. "Friday's] six-10 day forecast is not quite as cool as yesterday's over most of the eastern two-thirds, especially across the northern tier of the nation. No major changes out West where above to well above normal temps continue, especially over the interior Northwest. Confidence in this forecast is average, perhaps near to slightly above average early in the period. Models maintain the amplified pattern dropping the deep trough down into the Southern Plains and Deep South while ridging builds across southern Canada and the northern tier."
WSI advocates "a slight cooler risk over the Mid South (including Texas) early in the period. Otherwise, the risk begins to shift to the warmer side over the latter half of the period south and east of Chicago."
In overnight Globex trading September crude oil eased 39 cents to $101.68/bbl and September RBOB gasoline gained a penny to $2.8213/gal.