The expiring April natural gas contract is expected to open a penny lower Tuesday morning at $1.84 as traders suggest that the market is likely to explore lower levels given fundamentals of production and fuel-switching Overnight oil markets fell.
Forecasters see a slight cooling trend, with some risks in either direction. WSI Corp. in its Tuesday morning six- to 10-day outlook said, "[Tuesday's] six-10 day period forecast calls for anomalous cold over the Upper Midwest, Great Lakes and into the Northeast. Above to much above average warmth is expected across the West, Plains and portions of the southern U.S.
"Today's forecast has swung back a bit in a colder direction. CONUS GWHDDs are up 2.7 to 70.9 for the period. Forecast confidence is near average today based on reasonably good large-scale model agreement. However, there is localized uncertainty along a meandering arctic cold front across the northern Plains, Midwest and Northeast as there may be a sharp contrast in air masses.
"There are risks in either direction. The Upper Midwest, Great Lakes and Northeast have a slight risk to the colder side given the proximity to the polar vortex. The interior West, central and southern U.S. could run a touch warmer during the front half of the period."
Analysts following fundamental parameters don't see much in the way of either reduced production or further increases in demand from coal-to-gas switching. "This market is still consolidating at around the middle of last week's trading range, but we still see breakout of recent parameters to the down side given the market's ongoing challenge of advancing in the face of a near-record supply level," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients.
"Although the EIA is likely to report a couple of storage draws this week and next, the total decline will likely fall short of 20-25 Bcf and wouldn't be far removed from usual seasonal tendencies. As a result, supply will remain at a near-record level and not far below the 2.5 Tcf area. With the weather factor diminishing in importance and with the huge supply fully discounted, market focus is shifting to production and electric generation demand.
"Although output is seeing some ongoing slippage as some pass through from the plunge in rig counts is slowly developing, shifts have thus far been unable to force production below year ago levels. More output decline will be required if any balance between supply and off take is to be seen anytime soon. Meanwhile, electric generation demand is showing difficulty in advancing to above year ago levels despite price induced coal to gas displacement. It appears that the bulk of this substitution has already been seen and that additional demand electric generation gains off of this factor could prove arduous."
In overnight Globex trading May crude oil fell 93 cents to $38.46/bbl and May RBOB gasoline shed 3 cents to $1.4826/gal.