May natural gas is set to open unchanged Tuesday morning at $3.06 as traders see the market requiring new input if the near-term trend lower is to continue. Overnight oil markets weakened.
Analysts see the fundamentals clearly favoring the bearish camp. "The lack of significant support off of the temperature factor appears discounted for now, and the market may require some bearish supply side guidance from Thursday's storage report if this recent down move is to resume," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients.
"We still feel that the money managers will be proceeding into a 'sell rallies' trading mode given the past week's chart damage. And with the supply surplus set to expand further on Thursday, the market will likely require a supply disruption in order to revive buying interest, especially with some nuclear facilities coming back online.
"We have suggested downward adjustment in stop protection to the $3.25 level close only on any short June positions established recently above the $3.30 mark. Our downside target remains valid to the $3.05 level. We will continue to monitor the front May-June spread as it establishes a new wide contango ahead of tomorrow's expiration in association with a renewed weakening in physical pricing."
Weather models overnight were balanced, with little net change in forecast heat or cooling loads. WSI Corp. in its Tuesday morning six- to 10-day outlook said the "period forecast is a bit cooler over the East early in the period, but the central and eastern U.S. are warmer during the back half. The changes offset each other, so GWHDDs are only down 0.8 to 29.9 for the period, which are nine below average. PWCDDs are down 1.4 to 12.3."
In the near term, however, things are much more active, with gas buyers for power generation across the MISO footprint having their hands full navigating severe weather patterns along with healthy renewable generation. WSI expects an active and stormy pattern and is calling the severe weather a “major” risk.
"A storm system will start to develop [Tuesday] and traverse the power pool through Thursday,” it said. “This system will lead to rounds of rain and thunderstorms, which may be severe across the Mississippi Valley late tonight and again Wednesday. A southerly flow ahead of the system will support above average warmth and elevated humidity with readings in the 60s, 70s to mid 80s. However, there will be enough cold air with readings in the 30s and 40s on the north side of the storm to support some wet snow across northern Minnesota into the Upper Peninsula of Michigan.
"A south to north-northwest wind associated with the storm system will boost wind generation today through Thursday. Output is forecast to occasionally peak 8-10 GW. After a decline, a second system will boost wind generation during the weekend."
Trading in May futures terminates at Wednesday's settlement.
In overnight Globex trading June crude oil dropped 12 cents to $49.11/bbl and June RBOB gasoline fell a penny to $1.6150/gal.