April natural gas is expected to open 3 cents lower Monday morning at $2.70 as traders see prices approaching key decision points and weather forecasts call for less heating load. Overnight oil markets slumped.
Risk managers are looking at longer-term forecasts calling for demand-busting usage and are keeping a sharp eye out should prices breach select parameters. Mike DeVooght, president of DEVO Capital Management, pointed out that last week's storage report, at first glance supportive, "was not bullish enough to offset a warmer than normal weather forecast for much of the country over the next couple weeks. On a trade basis, we will hold current positions. If the spot market drops below $2.60, we will liquidate positions," he said in a weekly note to clients.
Currently, DeVooght advises trading accounts and end-users to hold a long April $4.20 call option against the sale of an April $3.90 put. Producers should stand aside, he said.
Forecasters see somewhat cooler temperatures but also lower heating requirements. WSI Corp. in its morning outlook said "[Monday's] six- to 10-day period forecast is cooler than previous forecasts across much of the nation, except the Northeast due to the period shift. However, daily temps are up a few across a good portion of the central and eastern U.S. As a result, period GWHDDs are down 2.7 to near 89.5 for the CONUS.
"Forecast confidence is about average today as medium-range models are in slightly better agreement with the timing and progression of the pattern. However, the lack of consistency and a changeable stretch of weather hampers confidence levels. The idea that the EPO [Eastern Pacific Oscillation], AO [Arctic Oscillation] and NAO [North Atlantic Oscillation] may be in negative phases support a slight risk to the colder side across the eastern two-thirds of the nation during the start of the period. On the other hand, the East has a slight upside risk during the end of the period."
In the short term, however, PJM gas buyers for power generation, may be able to take advantage of ample wind generation as a front sweeps across the power pool. "High pressure and a west-southwest breeze will lead to partly sunny skies and spring-like warmth across the power pool [Monday]. High temps may warm well into the 50s, 60s and even 70s, [and] a sharp cold front is expected slide southward late tonight into Tuesday morning with a slight chance of a shower," WSI said.
"A brisk northwest wind behind the front will usher colder high pressure into the power pool during Tuesday into Wednesday. High pressure is expected to slide away from the region during Thursday. This may allow a complex frontal system to at least clip southern and eastern areas with a chance of rain, even some wet snow late Thursday into Friday. A west-southwest to northwest wind associated with the cold front will support elevated wind generation during the next couple of days. Output may range 4-5 GW. Wind generation should subside and become light during Wednesday into Thursday, but some improvement is possible by the end of the week."
In overnight Globex trading April crude oil fell 68 cents to $44.16/bbl and April RBOB gasoline dropped 2 cents to $1.7405/gal.