November natural gas is set to open 7 cents lower Wednesday morning at $3.89 as the specter of oversupply continues to loom over the market and weather forecasts -- which as recently as Friday called for cooler temperatures -- have shifted markedly warmer. Overnight oil markets continued to spiral lower.
Traditionally, natural gas prices make a preseason rally into late November, but analysts argue that the pending deluge of gas from newly minted wells in the Utica and Marcellus shales could change all that. "[W]e warned that a deluge of midstream transport projects would likely accelerate production growth in November, effectively preventing the traditional autumn price rally," said Teri Viswanath, BNP Paribas director of commodity strategy for natural gas, in a note to clients. "Last week's release of EIA's monthly data showing an on-trend increase in production only serves to underscore our initial supply concerns.
"Despite known pipeline constraints, newly connected wells in the Marcellus and Utica shale plays contributed to continued supply growth this summer, with total dry gas production averaging 70.4 Bcf/d in July, according to EIA, or a year-on-year increase of 3.45 Bcf/d. We anticipate that this growth will likely accelerate over the winter as new pipelines enable currently stranded supply to reach new markets. According to our analysis, winter production should average 4.25 Bcf/d over year-ago levels.
"Whether in anticipation of this supply growth or more simply a reaction to the acceleration in restocking, a sub-$4 delivery price for November leaves little doubt that supply concerns are once again resurfacing," she said.
For the moment, market technicians aren't willing to concede the market to the bears. "Still stuck in neutral territory; to restore the up trend bulls need to push natgas back above $4.106-4.116," said Brian LaRose, a technical analyst at United ICAP, in closing comments Tuesday. "To restore the down trend bears now need to crack $3.879-3.853, 3.793-3.771 and 3.714. Both have their work cut out for them. From a purely technical standpoint, bulls have yet to relinquish control. So for the moment our bias remains towards the bullish argument."
Tom Saal, vice president at INTL FC Stone, in his work with Market Profile is looking for the market to test Tuesday's value area at $3.959 to $3.919. The Market Profile methodology during the first two days of the week calculates an "initial balance" from which prices may move higher or lower. Trading requires a buy if prices break to the upside of the initial balance and conversely a sale should prices drop through the lower boundary of the initial balance. Saal places the initial balance currently at $3.968 to $3.887 and places upside targets at $4.009 and $4.049 and lower targets at $3.847 and $3.806.
In overnight Globex trading November crude oil traded down 95 cents to $87.90/bbl and November RBOB tumbled 5 cents to $2.3182/gal.