November natural gas is set to open 4 cents lower Friday morning at $3.58 as traders note little change in mild weather forecasts and increased production is expected to make up for an expected storage deficit relative to last year. Overnight oil markets retreated.
Analysts noted that the market had something of a lukewarm response to Thursday's reported 94 Bcf inventory build, and "the supply deficit against five-year averages contracted again by almost 25 Bcf," noted Jim Ritterbusch of Ritterbusch and Associates. "Now the market will begin to focus on what is likely to be another exceptionally strong build in next week’s report. Although the short-term temperature forecasts are beginning to take on a more neutral appearance when looking out beyond next week, this market will require some indication of a sustainable cold trend before posting any meaningful price advances.
"Fundamental dynamics continue to tilt bearish with the supply deficit against averages narrowing by about 1% per week as we anticipated," Ritterbusch added. "Until this dynamic shifts, we see strong likelihood of this market drafting down to about $3.55 and ultimately to as low as $3.40 before major long term support is capable of building a base for a long term up-move. In short, we see high probability of fresh lows but see as much upside as downside risk when extending a view out some 1-2 weeks."
David Tameron, analyst at Wells Fargo, sees a 3.5 Tcf ending inventory easily within reach. "At 3,393 Bcf, we are sitting ~0.4 Tcf below the five-year average winter starting-inventory level of about 3.8 Tcf, though consensus currently stands at around 3.5 Tcf as the end-of-refill season storage level. With two weeks left in the typical refill season, injections need to average ~54 Bcf/week to hit the 3.5 Tcf consensus target. With five straight weeks of 90+ Bcf injections and a mild forecast for early winter season, the Lower 48 are on pace to hit/beat the consensus estimate of 3.5 Tcf barring any serious weather implications."
Power generators across the broad MISO footprint mulling gas purchases for weekend generation may have an easy go of it. Forecasters are calling for mild conditions with ample wind generation. "Generally fair and warm conditions are expected [Friday] into the weekend. A frontal system may move into the central US during Sunday night into early next week with a chance of showers and/or storms," said WSI Corp. in its morning outlook.
"A southerly breeze ahead of this system will lead to unseasonably warm conditions during Monday. Highs into the 60s, 70s to near 80 will range 10-20 F above average. However, cooler, more seasonable temperatures may filter into the power pool by Tuesday. Period rainfall amounts may range 0.25" or less. Highly variable wind generation is expected during the next couple of days. A more substantial boost of wind generation is expected during late Saturday night into early next week associated with the expected frontal system. Output may occasional peak in excess of 7 GW."
In overnight Globex trading December crude oil fell 50 cents to $81.87/bbl and December RBOB gasoline fell a penny to $2.1444/gallon.