July natural gas traded at a new high overnight and is set to open 4 cents higher Monday morning at $2.60 as traders eye the arrival of warm temperatures, hefty gas-driven power loads, and a positive technical landscape. Overnight oil markets fell.
Analysts following the power market see this week as generating some of the highest loads of the season. With the uptick in gas prices, more coal generation is likely to be in the stack.
"As we head into the middle portion of the month, the overall power demand across the central portion of the country will be strong as daytime high temperatures move into the low/mid 90s in certain places and this thing called humidity is in play," said EnergyGPS in a Monday morning note to clients. "From a net load (power demand minus wind), the grid looks to be going from a flat average of 339 GW to over 365 GWa by Friday.
"[T]his type of demand increase coupled with the recent uptick in the natural gas price should initiate some coal-fired generation to turn on across the Midwest, SPP and Western PJM markets. Over the weekend, that is exactly what has occurred as MISO's generation stack saw coal output shift up while the natural gas fleet was in line with last year's levels. SPP had a similar trend over the weekend.
"Bottom line is it seems summer is here now that school is out in most parts of the country. The heat wave hitting the central corridor of the country should trigger coal to turn on while still burning plenty of gas. The western heat will be rolling in over the weekend and into next week. This will prompt all the generation in the Los Angeles Basin to be ready and able to turn on for at least three to four days."
Market technicians following candlesticks and retracement suspect the market still is on track for higher prices, but Friday's setback needs to be figured in. "Friday's candlestick was a bearish harami cross sell signal," said Walter Zimmermann, vice president at United ICAP, in a weekly note to clients. "To confirm a top in ratio retracement terms, natty now needs to break decisively below $2.460."
In overnight Globex trading July crude oil dropped 54 cents to $48.53/bbl and July RBOB gasoline shed 2 cents to $1.5383/gal.