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Traders Mull Shifting Supply Dynamic; December Seen 12 Cents Lower

December natural gas is expected to open 12 cents lower Tuesday morning at $2.70 as weather models show mild temperatures continuing for another two weeks. Overnight oil markets were narrowly mixed.

Overnight weather models reverted back to warmer patterns, primarily in the 11- to 15-day time frame. "While some minor cooler changes are noted in the East and Midwest in short range and along the East Coast for the six-10 day, warmer changes later in the six-10 day and especially in the 11-15 day lead to a demand loss [Tuesday]," said Commodity Weather Group in its Tuesday morning report to clients.

"The upcoming spike in tropical forcing (Madden-Julian Oscillation) appears to only temporarily topple the big warm-prevailing pattern based on both the American and European model guidance. Both sets of guidance are more aggressive this morning in shifting some degree of upper-level low pressure troughing back to the Gulf of Alaska, which leads to warmer-looking 11-15 day," said Matt Rogers, president of the firm.

Analysts see a rethinking of earlier takes on the supply-demand balance. "[Tuesday's] sharp selloff that is being led by the nearby December contract reinforces our opinion that it is premature to approach the long side of this market even when considering bull spreads as an alternative trading strategy," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients. "Updates to the short-term temperature views have shifted in a bearish direction that generally favors extension of mild trends across the nation's Midcontinent.

"This is providing an offset to expected normalization along the Eastern seaboard by next week. As a result, the usual storage peak is being delayed and adjustments to a record supply high to above the 4.1 Tcf level are generally being required. Furthermore, this unusually mild fall is beginning to force some bearish alterations to longer-term outlooks across the winter that could easily exacerbate the impact of record supplies.”

The National Weather Service (NWS) continues to forecast below-normal heating requirements for major energy markets. For the week ending Nov. 12 NWS said New England should experience 135 heating degree days (HDD), 14 below normal, and the Mid-Atlantic is seen with 112 HDDs, or 28 fewer than normal. The greater Midwest from Ohio to Wisconsin is expected to endure 98 HDDs, or 61 fewer than its normal tally.

In overnight Globex trading December crude oil fell 6 cents to $44.83/bbl and December RBOB gasoline rose fractionally to $1.3717/gal.

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