June natural gas is expected to open 3 cents lower Friday morning at $2.98 as traders grapple with high production, high inventories, and relatively high prices. Overnight oil markets slumped.
Analysts are a little perplexed about the recent strength in futures prices in light of triple-digit storage builds and expectations of record season-ending inventories. "More gas has been injected since March compared to this time last year, and storage remains on track to beat record," said Breanne Dougherty, an analyst with Societe Generale in New York.
"While we would like to have a definitive explanation for the persistent upside pressure gas has seen over the last couple of weeks, we find ourselves at a bit of a loss. Supply looks good, and there has yet to be any information that would have us change our base-case flat profile this summer. Demand is also performing as expected. We continue to feel a price above $2.75/MMBtu has the ability to detrimentally impact generation loads through June considering the looseness in the coal market and reduced elasticity in the segment, but are becoming increasingly fond of the spiking core summer profile that we have held in our expectation and are neutral on our base-case fall price profile at the moment."
Market technicians are less concerned with storage and supply than they are with Elliott Wave and retracement parameters. "With the $2.939 level in our rear-view mirror, bulls can now set their sights on the next area of contention at $3.399-3.494," said Brian LaRose, a technical analyst with United ICAP. "This zone represents 0.236 of $6.493 to 2.443 and 0.500 of $4.544-2.443.
"[We] see $3.034 and $3.249 as the only hurdles standing between here and this objective. At this point, we do not anticipate encountering any significant resistance from these levels," he said in closing comments Thursday.
Gas buyers for power generation in the Northeast may be looking at some hefty weekend loads. According to Brian Lada, a meteorologist with AccuWeather.com, "Much of the Northeast is in for a warm and humid weekend following the cooler weather that occurred during midweek. Shorts and short sleeve shirts will be common attire around the region as cities such as Pittsburgh, Baltimore and New York City all experience an uptick in temperatures and humidity.
"This weekend will prove to be a good opportunity for people to test out their air conditioners before the heat of summer builds over the coming weeks. A slight rise in temperature will take place on Friday before the warmth and humidity builds throughout the weekend. Sunday appears to be the warmer of the two days this weekend with some locations flirting with the 90-degree mark on Sunday afternoon."
In overnight Globex trading June crude oil fell 27 cents to $59.61/bbl and June RBOB gasoline slipped a penny to $2.0362/gal.