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November Outlook Unlikely to Inspire Bulls; Market Called 2 Cents Lower

November natural gas is expected to open 2 cents lower Tuesday morning at $3.88 as near-term weather forecasts don't appear quite as constructive as late last week, yet analysts don't see a convincing case for a concerted price slide. Overnight oil markets softened.

Joe Bastardi of WeatherBELL Analytics in his November forecast is calling for a very benign month with normal temperatures in all population centers and only isolated occurrences of above-normal temperatures in the far Northern Plains. As part of that forecast Bastardi is incorporating 1976 as one of his analog years. One of the most brutal winters on record.

"Here is the problem. The years that make up the analogs include 1976. I am not yet ready to swing to that extreme of an idea, but it's not like the blend is likely to work. It's either going to go one way, toward some real warm samples of that analog or to the colder analog," he said in a Tuesday morning note to clients.

"I need to see another big crash in the SOI [Southern Oscillation Index, i.e. El Nino indicator] before I can jump on a colder scenario. In 1976, the SOI (I am talking about that because the forecasted Sea Surface Temperatures for winter look very much like it) and the Pacific hurricane season has been very similar to this year. If we look at 1976 as a possible hint as to how this turns out, we see [that] there was a rise October into November and then the fall came. I am looking for the fall to start later this month again or in November, as the ECMWF [European model]. Weeklies show pressures rising over the western Pacific and falling in the central Pacific. This should bring the warmer sub-surface waters to the surface in ENSO 3.4. This has been a mainstay of our idea."

Bastardi cautioned that "...until I actually see the fall of the SOI, I am staying in the middle and keeping continuity with the November idea. November is a tough month to forecast as it is, but I suspect that we will see evidence one way or the other. The threat here is that we start turning very cold later in the month and then December is very cold. Again, we are not changing the forecast, but I am laying the foundation of my thoughts so you know what is on my mind. The Spirit of '76 is lurking, but at this time it is just one in the entire package."

Near term, analysts are looking for market weakness, but a prolonged downtrend doesn't appear to be in the cards. "And while cool trends are likely to remain in place across the upper Midwest, deviations from normal don't appear as pronounced as generally anticipated at the end of last week," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday to clients. "As a result, some continued strong storage injections would appear to lie ahead. Thursday's injection isn't likely to be as strong as the prior week but could easily approach the 110 Bcf area as a result of some continued downsized electric generation demand and further production strength.

"We will reiterate that coal to gas switching hasn't been as strong as we had previously expected, and that accounts for much of our low side 'misses' within recent EIA reports. However, constructing a strong bearish case for values below the $3.85 level remains arduous, and we still view this expected support as likely to be tested and validated as this week proceeds. We may look to probe the long side at levels below $3.85 for a trading turn back up toward the $4.20 area as a renewed cold spell is apt to develop this month and should prove capable of spurring some renewed buying during this traditionally strong anticipatory phase of the heavy usage cycle."

In overnight Globex trading November crude oil fell 49 cents to $89.85/bbl and November RBOB gasoline dropped a penny and a half to $2.3966/gal.

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