May natural gas is set to open 3 cents higher Tuesday morning at $2.57 as traders stick to their longer-term game plan and weather forecasts call for some minimal cooling. Overnight oil markets slumped.
Analysts saw Monday's 10-cent slide as something of a curious response to near-term weather, but they see no reason to change longer-term strategy.
"This market was under heavy selling pressure right out of the gate this [Monday] morning despite some weekend updates to the short-term temperature views that looked supportive from our perspective," said Jim Ritterbusch of Ritterbusch and Associates. "While conceding that below-normal temps at this time of the year don't translate to much HDD accumulation, cold trends can still slow storage injections as will likely be indicated in next week's EIA release.
"As far as this Thursday's numbers are concerned, we will be looking for an injection about double year-ago and five-year average builds of around 45 Bcf. This appears to be a factor that contributed to some of [Monday's] selling and a bullish surprise such as a hike of less than 75-80 Bcf may be required to jump start a meaningful price advance. For now, we suggest holding any short positions that were re-established last week within the $2.71-2.74 zone basis June futures. Our longer-term game plan remains unchanged, and we will still be looking to employ further price declines into the $2.40-2.50 zone as an opportunity to establish investment type longs on a scale-down basis. We will continue to note limited weakening in term structure even on days when prices decline by around 3.5%"
Overnight weather models call for a modest incursion of cooler air near term, but otherwise conditions are expected to be near seasonal norms. Commodity Weather Group in its Tuesday morning report said, "We continue to track a cool push into the Midwest, South and East in the first half of the forecast period, which delivers a brief burst of stronger late-season heating demand later this week into early next week. Lows drop into the 30s for the Midwest, 30s-40s for the East Coast for mainly overnight heating demand enhancement impacts. [Tuesday's] forecast also sees the South shift a bit cooler, which removes more cooling demand than it adds on the heating side here by late April.
"Otherwise, the West starts to shift a bit warmer by later six-10 day before we get to the very muddled look of the 11-15 day, which is also the start of the next month. The models continue to show conflicting influencers that work against each other to prevent any strong dominated warming or cooling. The result is many areas closer to near-normal temperatures and very low demand levels that are essentially climatology levels for early May."
Tom Saal, vice president at FC Stone Latin America in Miami, in his work with Market Profile expects the market to test Monday's value area at $2.541 to $2.557 before moving on and "eventually" testing $2.630 to $2.658.
In overnight Globex trading the expiring May crude oil fell 13 cents to $56.25/bbl and May RBOB gasoline dropped 2 cents to $1.9150/gal.