November natural gas priced in another accumulation of warming temperatures overnight and probed deep into sub-$2 territory. It is expected to open unchanged Tuesday morning at $2.06. Overnight oil markets weakened.
Overnight weather model runs continued to shed degree days. In its Tuesday morning report, Commodity Weather Group said the "Latest 0z data again lose another handful of degree days as warmer trends continue to dominate the scene. The European [Model] is still the warmest, but the American ensemble has shifted stronger, too over the last few cycles, especially for the 6-10 day. The 11-15 day looks more variable with even the European clusters showing late-period cooler Eastern risks, but the upper-level pattern does not show anything strong or durable."
AccuWeather.com forecasts the high in Chicago and New York next Tuesday will reach 66, 8 degrees above normal for Chicago and 6 degrees for New York.
Jim Ritterbusch of Ritterbusch and Associates cautions against trying to pick a bottom in this market. "A huge expansion in carrying charges just ahead of contract expiration provides a major bearish pricing signal within any market, and gas is no exception. This downside breakaway in the prompt month is sending off strong signals of an oversupplied market that is apt to see additional surplus expansion given extension of mild temperature trends that are now widely expected to stretch well into the second week of November.
"This should extend the timing of seasonal supply peak to about the middle of next month, with a season-ending stock exceeding the psychological bearish level of 4 Tcf. So until some cold temperatures begin to show up within the short term one to- two-week views, this market would appear to possess some further downside risk, while tomorrow's passing of the November contract could relieve some bearish price pressures as December futures will be forced to discount some colder air during the coming month."
As desolate as the price landscape may appear at the moment, there is hope. Analysts at Bank of America Merrill Lynch (BofA) said they remain convinced of a "fundamentally positive outlook" by the second half of 2016 and beyond. Goldman Sachs had expected U.S. prices to average $2.70/MMBtu in the fourth quarter, but last week it said prices already had fallen below that price.
A lot of the issue has to do with continued strong output from the Northeast, analysts said. However, "lower prices this winter also imply less production in the future," BofA said. "Output in the Northeast has already failed to keep up with growth seen over the past four years, a function of local basis prices trading in a weak 80 cents to $2.00/MMBtu range since end of March. The lack of growth stands in contrast with the ramp-up of new pipeline takeaway capacity that has already happened throughout this year."
In overnight Globex trading December crude oil fell 60 cents to $43.38/bbl and December RBOB gasoline fell fractionally to $1.2823/gal.