May natural gas is set to open 4 cents lower Friday morning at $3.29 as traders question just how much more upside the market has left in it given currently ample storage. Overnight oil markets rose.
Traders are generally reluctant to follow the market higher but concede that the current surplus against five-year averages may not be enough to prevent a price response to early-season cooling load.
"[Thursday] saw the usual volatility spike post EIA storage release that lifted May futures back to the midweek highs of $3.35," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning report to clients. "We remain reluctant to follow this price advance given lack of weather related support within consensus of one- to two-week temperature views that still favor mild trends. Furthermore, we look for the storage surplus against five-year averages to stabilize in the 265-270 area for a couple of weeks with this supply cushion of almost 15% providing some offset against several non-weather supportive items.
"However, the recent price strength is sending off strong overtures that non-weather-related items have been increasing withdrawals while downsizing last week's first injection of the season. Year-over-year production comparisons are not yet showing a strong response to the major upswing in the oil rig counts that should be translating to stronger associated gas output. Additionally, power demand has been stepped up with some help from coal to gas switching and larger than expected nuke downtime. Export activity also remains brisk.
"Nonetheless, we still question the sustainability of this recent price advance given unusually mild temperature forecasts that will be seen across the upper continent this weekend with extension out some two weeks. In view of the expected limited HDD and CDD accumulation, we feel that the surplus could see a further stretch through the rest of this month but with next week's EIA release likely to indicate only a minor increase in the supply surplus. But while an approximate 15% supply overhang may be able to limit additional upside follow-through, it may not prove to be a match against an early start to a hot summer."
Gas buyers for weekend power generation across ERCOT will have not only warm temperatures to deal with but also a healthy collection of renewable generation to offset gas purchases. "Seasonable conditions will give way to spring warmth this weekend, and fair weather and a developing southerly wind with gusts in excess of 30 mph will support a quick warming trend [Friday] into the weekend," said WSI Corp. in a Friday morning note to clients.
"Humidity levels will gradually creep up as well. Max temps will rebound into the 80s to near 90. This warm air-mass and a cold front will support the increasing chance for heavy rain and strong thunderstorms Sunday evening into early next week. Wet weather will knock temperatures down into the 70s to low 80s.
"A warm southerly wind will cause wind gen ramp-up and become strong today into the weekend. Output is forecast to peak 11-14+ GW. Mostly sunny skies will support solar gen the next two days, but clouds will increase and impede solar gen by early next week."
In overnight Globex trading May crude oil rose 43 cents to $52.13/bbl and May RBOB gasoline rose fractionally to $1.7316/gal.