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Traders Mull Cooling Along With Technical Strength; May Called 2 Cents Higher

May natural gas is set to open 2 cents higher Monday morning at $3.21 as traders factor in modest near-term cooling along with lighter than normal heating loads. Overnight oil markets rose.

Weather forecasts are moderately cooler going forward but nothing to upset market equilibrium. "This period averages near normal with temperatures for most areas across the U.S., with slight cooler leanings in the Midwest while slight aboves are focused in the Southwest," said MDA Weather Services in its Monday morning 11- to 15-day outlook.

"A round of below-normal temperatures are forecast across the Rockies and Plains to start the period, with belows then pressing eastward. This cooler air mass will break down early period aboves along the East Coast, with forcing support for this round of belows coming from an MJO [Madden Julian Oscillation]-like signal out of its western Hemisphere phases. Confidence, however, is on the low side of moderate given the weak forcing signal from the tropics.

"The Midwest could be cooler still, with this risk based on the American model and temperature correlations from features associated with the -AO [Arctic Oscillation] and -WPO [Western Pacific Oscillation]. Risks are mixed in the West."

Risk managers see the current trend higher in natural gas prices coming to an end. Mike DeVooght, president of DEVO Capital, sees the present market strength largely technically based. "The only other news supporting the strength of natural gas is based on expectations for a warmer than average summer. We feel as spring approaches and demand continues to lack, we should see a pullback in natural gas prices,” he said.

"On a trading basis, we continue to look for the market to run out of steam at current levels. We think there is a good chance that we could test the lows of late February in the next few months. We will hold current short positions for producers and will look to sell May at $3.15-3.20 for speculators."

Heating loads for early April are expected to slide seasonally, but data from the National Weather Service (NWS) shows expectations in key energy markets well below seasonal norms. For the week ended April 8, NWS predicts New England will see 132 heating degree days (HDD) or 30 fewer than normal. New York, New Jersey and Pennsylvania are expected to have 101 HDDs or 40 fewer than their typical seasonal tally, and the greater Midwest from Ohio to Wisconsin is predicted to see 106 HDDs, or 39 fewer than normal.

The early call on the week's storage report is for a slight build. The Desk in an Early View assessment of the week's storage report surveyed 10 traders and analysts and the average revealed an 11 Bcf build for the week ending March 31. All those surveyed expected a storage injection, and the range was from +5 Bcf to +22 Bcf. Last year 6 Bcf was injected and the five-year average is for a 13 Bcf withdrawal.

In overnight Globex trading May crude oil rose 15 cents to $50.75/bbl and May RBOB gasoline gained fractionally to $1.7066/gal.

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