September natural gas is expected to open 4 cents lower Friday morning at $3.80 as traders mull continued storage deficit reduction and ongoing weakness in the financial sector. Overnight oil markets fell.
Despite Thursday's gains, traders see the dynamic of ongoing deficit contract as the primary price driver.
"[B]elow-normal trends are still anticipated across a broad portion of the U.S. with some views stretching to mid-August. This will help to maintain the dynamic of deficit contraction that has been developing this summer in dramatic fashion," said Jim Ritterbusch of Ritterbusch and Associates. "Despite some moderation in the temp views later next week, we still see a growing likelihood of a season-ending supply of around 3.6 Tcf or more. Renewed production growth is becoming apparent and will accommodate a season-ending supply level significantly less than the five-year average of 3.83 Tcf. Meanwhile, occasional minor tropical storm threats continue to dissipate, and a need to erase some hurricane premium out of the fall contracts may be required with the arrival of August."
Ritterbusch sees enough speculative capital available to push the market still lower. "While the recent slowing in downward momentum may be suggesting some selling exhaustion, we still feel that the money managers have excess capital to employ toward the short side of this market. Dynamics drive price direction in any commodity, and until the natural gas supply-usage dynamic begins to shift via above-normal temperature trends, placing a bottom in this market could remain elusive."
He also sees a chart test of $3.72 in the cards and said that the market needs to factor in two additional plump storage builds along with increased production.
Natgasweather.com reported that, "The latest weather models are still coming in, but what we have seen is in line with our forecast of warming temperatures the next couple of weeks, especially over the southern U.S., including the high-demand states of Texas, Oklahoma and California. With temperatures warming into the mid 90s and 100s, cooling demand will be quite strong and could support prices regionally. The northern U.S. will still see weather systems tracking through, although they will be quite a bit milder than the recent string of cool blasts.
"What is important is strong bearish headwinds will be easing over the coming weeks, apart from next week's much larger than normal build that will be factoring in this week's impressive cool blast."
The National Hurricane Center in its 8 a.m. EDT Friday report said Tropical Storm Bertha was lumbering to the west-northwest at 20 mph and was sporting winds of 45 mph. The storm was 110 miles east-northeast of Barbados and NHC projections showed it hitting the Bahamas and veering to the northeast.
In overnight Globex trading, September crude oil fell 54 cents to $97.63/bbl and September RBOB gasoline dropped a cent to $2.7880/gal.