October natural gas is set to open 5 cents lower Tuesday morning at $3.88 as traders see little in the way of market-moving near-term events and weather forecasts look benign. Overnight oil markets fell.
Analysts are mulling whether the traditional seasonality will prevail with spot futures putting in a late-summer to fall bottom and rallying into late November or early December. "[W]e've heard more than a few traders express their reticence for building excessive short positions following the Labor Day holiday because of traditional seasonality," said Teri Viswanath, director of commodity strategy for natural gas at BNP Paribas.
"Taking a closer look at the price trends of the past five years, we do see a slight tendency for the October futures contract to rally into expiration following the holiday. However, with the exception of 2009 (when natural gas prices staged a dramatic $1 recovery in the front of the curve), the data suggests to us that prices typically remain in a tight 20-cent range. In fact the re-acceleration of restocking last year result[ed] in the Oct. '13 contract declining from $3.66/MMBtu following the holiday to $3.498/MMBtu by expiry. The pick-up in inventory restocking we see ahead might likewise curtail early winter bargain hunting this year.
"We note that, with the exception of 2012 (when storage capacity concerns kept prices depressed), the more recent price history suggests that the market tends to establish a floor around $3.50/MMBtu toward the end of the injection season. From a fundamental perspective, market share in the electric power sector tends to favor heavier gas utilization with natural gas prices at or below this level. We made this same observation a year ago when prices tested down to the seasonal low of $3.23/MMBtu during early August, with prices subsequently ranging between $3.50 and $3.75/MMBtu for the balance of that season. While acknowledging the dangers of picking a bottom in a falling market, we expect that prices will likely fall within a similar trading range until early heating demand emerges in October."
If near-term weather forecasts are correct, buyers for power generation in PJM will have to navigate mild weather patterns, some load-killing rain and low output from renewables. In its Tuesday morning forecast WSI Corp. said, "A weakening frontal system will lead to mostly cloudy skies and just a slight chance of a few lingering showers across the Mid Atlantic today. High pressure and fair weather will slide in behind this system later today into Wednesday. A secondary cold front may usher in a reinforcing area of cool high pressure for the end of the week. The center of high pressure should slide off the East Coast during the weekend, which should allow for a moderating southerly flow to develop, and eventually by Saturday night some wet may push into the Chicago metro area.
"Weak wind generation is expected today into most of Thursday. However, a developing southerly flow around the western periphery of high pressure should support an upward trend in generation during Thursday night through Saturday. Output may range 1-2-plus GW. The lack of any significant rainfall may cause stream flow and hydro prospects to hold steady, if not abate as the period progresses."
In overnight Globex trading October crude oil fell 38 cents to $92.54/bbl and October RBOB gasoline lost a half cent to $2.5269/gal.