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Plump Supplies Minimizing Buyer Risk; September Called Down 2 Cents

September natural gas is seen opening 2 cents lower Tuesday morning at $2.71 as traders factor in additional cooling and see a supply overhang minimizing hedging requirements. Overnight oil markets fell.

Analysts see continued weakness driven by cooler temperature forecasts. "This market is seeing some further selling as updates to the short term one- to two-week temperature views are looking a bit cooler than yesterday in forcing some upsizing in storage injection ideas later this month and into early September," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients. "The market also appears to be looking ahead to the rollover into the October futures as prompt month in a little more than two weeks when the temperature impact will be further downsized."

Long hedgers don't see any sense of urgency. "A small supply surplus appears to be discouraging commercial hedging interest capable of sustaining a price advance toward our perceived $3.00 upside price parameter," Ritterbusch said. "The surplus against five-year average levels will likely expand to around 90 Bcf on Thursday if our projected injection is realized. And, given the cooler Midcontinent temperature views, an excess supply of more than 100 Bcf is likely to be seen by early next month.

"However, this doesn't represent a major overhang within historical context and with this in mind, we are still having difficulty constructing a pricing scenario that would carry nearby futures much below the 2.65 region. Extending a view to early November, a record supply would appear likely but only be a slight margin that would keep the market sensitive to an earlier than usual winter cold spell."

Texas gas buyers making purchases for power generation may be able to temper their buying somewhat as forecasts call for hefty wind generation. ERCOT forecasts peak load Tuesday at 66,266 MW, not quite the record reached last Monday of 69,783 MW but healthy power load nonetheless.

WSI Corp. in its Tuesday morning outlook said ERCOT could expect that "a southerly breeze will support elevated wind generation [Tuesday] through tonight. A north-northeast breeze behind a cold front will cause wind gen to step down during Wednesday into most of Thursday. However, a developing southerly flow will likely cause wind gen to ramp back up during Thursday night through Saturday. Wind gen could become strong with output as high as 8-10 GW each night."

Tom Saal, vice president at FC Stone Latin America LLC, in his work with Market Profile expects the market to test Monday's value area at $2.783-2.722 before moving on and testing $2.812-2.793.

The National Hurricane Center in its 8 a.m. EDT report said, "Only a slight increase in organization would result in the formation of a tropical depression later today while the [Atlantic] system moves westward to west-northwestward at 10 to 15 mph." NHC estimated a 90% chance of tropical storm formation in the succeeding 48 hours, and a 90% chance in the succeeding five days.

In overnight Globex trading September crude oil lost 7 cents to $41.80/bbl and September RBOB gasoline fell a penny to $1.6450/gal.

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