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Lean Storage Build In Market, Analyst Says; September Called A Nickel Higher

September natural gas is seen opening 5 cents higher Tuesday morning at $2.80 as overnight weather forecasts continue a warming trend from late Monday. Overnight oil markets rose.

Natgasweather.com in its Tuesday morning report said it sees the weather trend from late Monday continuing into Tuesday and giving a boost to the market. September gained "momentum late in the day with the confirmation of hotter weather patterns in the mid-day data. The overnight data continues this trend as the hot dome of high pressure is expected to expand and strengthen next week," the company said.

"Until then, weather systems out of southern Canada are expected to track across the Great Lakes and northeastern U.S. through this weekend, providing comfortable temperatures over these very important natgas demand regions. This will lead to lighter overall cooling demand compared to last week even though much of the western, central, and southern U.S. remains very warm to hot, especially over Texas where the hot ridge is anchored overhead with conditions underneath quite miserable with temperatures into the upper 90s to 105 degrees F, along with high humidity."

Analysts don't see the market moving much on what is likely to be an inventory report showing the leanest build of the season. "This market continues to frustrate both the bulls and the bears as follow-through remains elusive in either direction," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients.

"While a bearish case can be constructed with the help of this summer's newly acquired supply surplus against average levels, we will further note that the excess supply is comparatively small at only around 85 Bcf or roughly 3%. Another bout of above-normal temperatures, such as that expected next week, could help to contain this surplus in precluding a test of our support at the $2.65 area. And while this Thursday's supply build [report] will be downsized by as much as 15 Bcf from the prior week's near-average increase, we feel that a sub-50 Bcf number has been fully priced.

"Price levels at Henry Hub contained below the $3 mark throughout this summer might suggest additional gas purchases from the utilities, [but] switching has been impeded to some extent by declining coal prices. On the supply side, production and imports likely saw a modest upswing last week that could keep this week's EIA surprises tilted toward the bearish side. But here also, shifts likely won't prove sufficient to significantly alter the balances. Meanwhile, we see limited opportunities in trading the natural gas curve as virtually all portions appear appropriately priced at current levels. In sum, this remains a market conducive toward option spread strategies designed to capture premium."

In overnight Globex trading September crude oil gained 70 cents to $45.87/bbl and September RBOB gasoline rose 3 cents to $1.7007/gal.

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