July natural gas is expected to open 5 cents lower Friday morning at $2.57 as bulls consolidate their gains following Thursday's hefty advance, and mull a vulnerable seasonal environment. Overnight oil markets fell.
Fundamentals analysts are keeping an eye on the weather. "While some of this [storage] difference from most forecasts may have been holiday-related and could see some offset in next week's report, the downsizing was large enough to suggest a bigger than anticipated coal-to-gas displacement, some lift in exports and a softer production than generally perceived," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning report to clients. “But while considering such possibilities, we still feel that weather forecasts will continue to rule over the short term.
"While updates are looking less bullish than was the case 24 hours ago, CDDs still look higher than normal and should facilitate additional injections significantly downsized from normal and particularly reduced from a year ago. The market is already looking ahead to next week when current hot temps will likely show another contraction in the supply surplus in furthering a trend that could prove sustainable through much of the summer."
Technical analysts see natural gas poised to advance another 25 cents but caution that the market is within a seasonal peaking window. "With $2.493-2.568 offering only minor resistance, the door is now open for a further advance to $2.763-2.854-2.870," said Brian LaRose, a market technician with United ICAP.
" This next area of contention represents the 0.236 retracement of the $6.493 to 1.611 decline and 1.618 (A)=(C) up from the 1.611 low. Note, we strongly recommend keeping a very close eye on the rest of the petro complex for evidence of a seasonal top. Natgas could easily follow."
Gas buyers with the responsibility for procuring supplies for weekend power generation across the Southern Power Pool will have to balance warm humid temperatures but also solid wind generation. "A midsummer-like pattern is expected," said forecaster WSI Corp. in a Friday morning report. "An upper-level ridge and southerly wind will support above-average heat during the remainder of the week into the weekend, though an isolated thunderstorm cannot be ruled out each day. High temps will likely top out in the upper 80s and 90s across the entire power pool, [and] humidity levels will gradually creep up and push heat index values up into the 90s to low 100s.
"A weak frontal boundary and an upper-level low ejecting out of the Rockies will support an increasing chance of rain/storms late Sunday into early next week, likely causing the heat to relax. A south-southwest wind will support elevated wind generation during the forecast period. Output will likely peak at 6-9 GW."
In overnight Globex trading July crude oil dropped 77 cents to $49.79/bbl and July RBOB gasoline shed 2 cents to $1.6015/gal.