November natural gas is seen opening 2 cents higher Thursday morning at $3.87 as traders brace themselves for what is anticipated to be another government report showing a bin-busting addition to natural gas inventories. Overnight oil markets slumped.
Analysts and traders are expecting a build in Thursday's inventory report along the lines of the 112 Bcf reported last week. Last year, 91 Bcf was injected, and the five-year pace stands at 84 Bcf. If estimates are correct, another sizeable reduction in the storage deficit will take place. Houston-based IAF Advisors forecasts an increase of 109 Bcf, and a Reuters poll of 23 traders revealed an average 108 Bcf with a range of 99-118 Bcf. Denver-based First Enercast is looking for 104 Bcf.
Industry consultant Genscape is looking for a 103 Bcf build and said in a morning report that "if realized it would mark the second consecutive +100 Bcf injection and maintain Genscape's forecast for inventories to reach 3,556 Bcf by Nov.1. This week's number is robust due to sustained production growth outpacing demand gains. Production during the week was fairly constant to slightly increasing, averaging 69.6 Bcf/d and reaching a high of 69.9 Bcf/d. Demand gradually increased during the week, growing from 56.3 Bcf/d on Sept. 27 to a peak of 64.0 Bcf/d on Oct. 2. A portion of the Lower 48 demand growth was met by increased imports from Canada as spreads from AECO to U.S. markets widened."
If degree-day forecasts are any guide, next week's build report is likely to be plump as well. The National Weather Service (NWS) forecasts below-normal accumulations of combined heating and cooling degree day requirements for major population centers for the week ended Oct. 11. NWS expects New England to see 65 degree days, or 23 fewer than normal, and the Mid-Atlantic should experience 53 heating and cooling degree days, or 21 fewer than its normal tally. The greater Midwest from Ohio to Wisconsin is expected to see 81 combined days, or three more than normal.
Commodity Weather Group in its Thursday morning outlook reported that "while some cooler changes in the Midwest in the six-10 day offer some slight pickup, other changes to cool Texas and the West today lead to reduction in late-season lingering cooling demand. We also see some warmer changes to the East Coast at times in the six-15 day range that also reduce the demand situation.
"The pattern in the Pacific continues to be messy, with lots of variability that keeps the situation active over the U.S., but no major cold air transport mechanisms are being built at this time. With climatology gradually building heating demand through the balance of October, this pattern situation lends itself to reduced year-on-year demand as we saw a bigger cool push by Oct. 22-26 last year (which is now days 14-18)," said Matt Rogers, president of the firm.
In overnight Globex trading November crude oil fell 40 cents to $86.91/bbl and November RBOB gasoline shed 2 cents to $2.2958/gal.