May natural gas is set to open 2 cents lower Friday morning at $2.04 as traders see an intact technical picture, yet a growing contango. Overnight oil markets rose.
Analysts are taking a close look at the steepening price curve. "This market is showing a similar pattern to that of the oil as consolidation is developing in the aftermath of an early week price up-spike," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients.
"Fundamental supportive forces also appear parallel as a declining pace of production that has begun to spin off of a plunge in rig counts is attracting much attention. The fact that this market is well supported despite some short term one- to two-week temperature views that appeared tilted bearish provides further testament to a firm market undertone. However, a substantial supply surplus and limited weather-related demand is keeping physical pricing well discounted against the nearby screen. These discounts have translated to a sizable contango expansion in the front switch since early last week that has seen carrying charges stretch from around 8 cents to almost 14 cents.
"This unusually large contango could eventually drive renewed speculative selling given the advantage of favorable roll yields that will prove appealing to investment-type entities. For the time being, short speculators still appear on the defensive in the aftermath of this week's chart improvement that has seen futures advance to highest levels since Feb. 12th."
The best cure for high prices is often high prices, and Ritterbusch sees the June contract as a tempting sale. "Although we will be raising downside [support] possibilities well off of the $1.83 level, we also feel that the large premiums in June futures upon attaining prompt status next week will prove enticing to the commercials."
Market technicians see the current advance as intact. "[We are] still viewing this congestion near the highs as a pause in the up trend," said Brian LaRose, a market technician with United ICAP, in closing comments Thursday. "To jeopardize the case for a march to the $2.324-2.400 neighborhood bears would need to push natgas back below 1.929.
"Until and unless they can make that happen, we have little reason to assume the rally is over. Suspect we may need to see the rest of the petro complex keel over for this move higher to end in an abrupt manner."
Gas buyers looking at weekend supply for power generation across the wet, soggy ERCOT footprint may be able to rest easy. WSI Corp. in its Friday morning report said, "Conditions will likely dry out and trend warmer during the next couple of days, but the chance of scattered storms may return during Saturday night into Sunday. Temperatures will generally top out in the upper 70s and 80s. Partly cloudy, warm and humid conditions will develop early next week, though this warmth may trigger a few isolated storms. High temps may peak in the 80s to low 90s along with [lows] in the upper 50s, 60s to low 70s.
"Light wind generation is expected to continue [Friday]. A moderating southerly flow will likely cause wind gen to ramp up and become elevated at times tonight through early next week. Output may occasionally peak 9-11 GW."
In overnight Globex trading June crude oil rose 36 cents to $43.54/bbl and June RBOB gasoline added a cent to $1.5405/gal.