July natural gas is expected to open a penny lower Friday morning at $2.70 as traders sense continued price weakness and an eventual long-term supply surplus. Overnight oil markets rose.
The year-on-five-year storage deficit was cut to just 18 Bcf with Thursday's reported EIA inventory build of an unexpected 112 Bcf. Should the deficit narrow even further and become a surplus, continued price weakness is likely in the cards, according to analysts.
"We still look for a surplus to be established next month, and such a development may require additional discounting," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday. "We viewed today's downside price response of almost 3% as appropriate. However, some further weakening would appear likely during the next couple of sessions given today's close below our expected support of $2.74. Next chart support develops at about [the] $2.61 level. While such a test is easily within reach next week, such a development may require another bearish EIA release.
"Our downside target remains intact to the $2.50 area, but achievement of such may require a couple more weeks unless temperature trends prove unusually mild. Meanwhile, we will note today's significant weakening in curve structure as an additional bearish portent that should keep the large institutional traders interested in the short side of the market. Overall, we are advising a continued bearish approach to this market."
If National Weather Service (NWS) forecasts are correct, heating and cooling requirements for the week ended May 30 are expected to be below average in major population centers, thus making it difficult to count weather demand as a market driver in next week's storage report. NWS forecasts combined heating degree days (HDD) and cooling degree days (CDD) for New England at 33, or 10 below normal. New York, New Jersey and Pennsylvania show a combined DD level of 40, or one above normal, and the greater Midwest from Ohio to Wisconsin is expected to endure 44 DDs or eight below normal.
Gas buyers seeking to supply power generation across the MISO footprint may have an ample supply of wind generation to tap going into the weekend. WSI Corp. in its Friday morning forecast said, "A south-southwest to northerly flow associated with the expected cold font will support increasing wind generation during the next couple of days. Output may peak tonight into early Saturday close to 9 GW. Wind generation is expected to decrease as the weekend progresses and remain modest early next week with output between 3-5 GW."
WSI said the strong wind generation was the result of a cold front expected to advance south and east across the power pool Friday into the weekend, with outbursts of heavy showers and thunderstorms. Warm temperatures and humidity were expected ahead of the front, but cooler, drier conditions are expected once the front passes.
In overnight Globex trading July crude oil rose 71 cents to $58.39/bbl and July RBOB gasoline added 2 cents to $1.9860/gal.