June natural gas is set to open 3 cents higher Tuesday morning at $2.13 as traders balance a market seen in equilibrium in the short term along with a strong bearish market sentiment. Overnight oil markets rose.
Observers keeping a close eye on supply and demand see the market in a holding pattern until new storage data on Thursday. "[S]upply and offtake are relatively balanced at current price levels with the weather factor providing limited guidance," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients. "This market could further mark time for a few more days until Thursday's weekly storage report is released. Although some contraction in the storage surplus against 5 year averages of at least 10 Bcf would appear likely, we feel that such a development has been priced in.
"In other words, an injection of less than 60 Bcf will likely be required in order to boost value back toward last week's highs. We are maintaining a short term bearish view for now as we still anticipate about a 15 cent price decline from today's close. But, we have afforded this trade much time and patience and we feel that our downside target of $1.95 per nearby futures will need to be achieved by week's end if it is to develop."
Analysts following sentiment indicators point to natural gas as still having an overwhelming presence of shorts. "As as of last week the market with the most bearish sentiment extreme is still Natgas," said Walter Zimmermann, vice president at United ICAP. "It is not 11% bulls anymore [March], but it is still a market super-saturated with shorts - more so than any other market.
"The message of a historic, bearish sentiment extreme is that the worst case has already been discounted. And if anything less bad than the worst shows up, prices will rally," he said in a weekly note to clients.
Weather forecasters suggest some cooling is on the way, but signs of impending warmth are also in the data. "Very slight demand increases are estimated today, but the demand levels are still relatively low seasonally," said Commodity Weather Group in its morning report. "Overall changes in the first ten days of the forecast period edges to the cooler side again today.
"We continue to track an impressive late-season cool push into the Midcontinent this coming weekend and continuing into the early half of next week. Some cooler changes also occur in the Western states in the first ten days as well as into the early 11-15 day for the Southwest. Otherwise, the models are starting to rebuild warmer weather for the 11-15 day across the Midwest, South, and even East," said Matt Rogers, president of the firm.
In overnight Globex trading June crude oil rose 25 cents to $43.69/bbl and June RBOB gasoline rose a penny to $1.4573/gallon.