Daily GPI / Markets

Warmth Just Keeps Coming; October Called 5 Cents Higher

October natural gas is expected to open 5 cents higher Tuesday morning at $2.98 as expectations of warmer weather in key energy markets continue to energize the bulls. Overnight oil markets fell.

Weather forecasts turned warmer overnight, hinting at increased cooling load and higher consumption. "[Tuesday's] forecast is generally warmer than yesterday's forecast, especially over the eastern two-thirds of the nation," said WSI Corp.in a Tuesday morning report. "CONUS PWCDDs are up 1.3 for days 11-14 to 19.2. For the whole period CONUS GWHDDs are forecast to be 12.4.

"Forecast confidence is only near average today due to technical differences late in the six-10 day period and some conflicting signals. However, there is reasonably good large scale ensemble model agreement and less spread when compared to yesterday."

Those weather forecasts are prompting a tweaking of analysts' estimates of end-of-season supply levels. "While we have emphasized that CDD elevation at this time of the year doesn't pack the same punch as above-normal trends during mid-summer, it is apparent that 80 degree temperatures in the northern Midwest will be downsizing injections to the point that achieving last year's supply peak may prove out of range," said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.

"Forecasts for end-of-season peak storage have been shifting back and forth above and below last year's 3.94 level of late and the market now appears to be discounting a supply of around 3.9 Tcf come early November. The fact that the tropical storm factor has been unusually limited this year has proven unable to exert bullish price pressures given the reduced importance of GOM production. And while we had expected onshore output to lift in response to the summer upswing in the rig counts, it appears that stronger output rates have been fully priced."

Tom Saal, vice president at FCStone Latin America in Miami, in his work with Market Profile said to look for the market to test Monday's value area at $2.927 to $2.913 before moving on and testing $2.821 and $2.791. "Maybe" the market will test $2.705 to $2.665.

Saal also identified a rare Failed (to) Auction pattern "that creates a pricing target for traders to utilize. The Failed Auction price range is $2.904-2.905 (expect the market to trade at that price.soon)," he said.

In overnight Globex trading October crude oil fell 46 cents to $42.84/bbl and October RBOB gasoline fell 3 cents to $1.3932/gal.

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