October natural gas is set to open 3 cents higher Monday morning at $2.99 as traders adjust their weather forecasts to incorporate greater heating demand. Overnight oil markets rose.
Risk managers used last week's $3+ spot futures to initiate short hedges. "Early [last] week, the gas market spiked higher on short covering and speculative buying when the $3 level was broken on the spot contract," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "The weekly storage number came in close to expectations and failed to be a market mover. We continue to feel a large part of the recent rally can be attributed to the funds liquidating a short position that has been in place for the past couple of years.
"On a trading basis, we reached our target levels ($3.10-3.15 basis November) to take a short position for speculators and to establish producer collars (buy puts and sell calls) with floors in the $2.50-2.75 range and ceiling in the $3.75-4.00 range," he said in a Monday morning note to clients.
According to weather forecasters, heating load is about to overtake cooling load, but the overall effect doesn't look to be that great. Commodity Weather Group in its Monday morning report said, "Cooler changes were more common than warmer ones in the short- to medium-range updates this morning for different parts of the U.S., leading to some offsetting small demand losses and gains, depending on which side of the demand coin each is located during this transitional period.
"This is the week when national heating demand overtakes cooling demand. The bottom line, though, is that demand continues to run relatively lower than normal, and today's changes are in the slight loss direction versus Friday," said Matt Rogers, president of the firm.
It looks as though pipeline operators are taking the opportunity to get work done. "This week features a heavy maintenance schedule, with several events capable of causing flow disruptions," said industry consultant Genscape in a Monday morning report. Genscape said it had identified a whopping 230 events expected to occur this week. In order to make sense of it all analysts "assess the potential impact of each one and grade it based on severity to flows, with a ‘1’ having no impact, and a '5' being an event that will completely shut off or severely diminish flows.
"Of the 230 listed events, seven are ranked with a 5 and six are ranked at a 4 ('major impact to flow')." They noted in particular continued restrictions on Algonquin, work on Tetco's 26-inch line, El Paso Keystone and Westcoast in British Columbia.
In overnight Globex trading November crude oil added 52 cents to $45.00/bbl and November RBOB gained a penny to $1.3683/gal.