June natural gas is set to open flat Friday morning at $3.37 as traders hold on to short positions and mull a softer cash market. Overnight oil markets inched higher.
Traders suggest holding on to, but not adding to, current short positions. "This market is currently prioritizing the dynamic of surplus contraction over the static factor of an approximate 275 Bcf storage overhang," said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients. "[Thursday's] much smaller than expected injection furthered the mid-week price up spike with some chart related buying adding to the bullish momentum.
"Although we suggest holding short June positions established above the $3.31 level, we are also advising against fresh shorts at current levels given the chart improvement seen yesterday off of a bullish EIA storage report. The money managers have been gravitating toward the long side of the market for several weeks and currently have little reason to accept profits. Various non-weather factors remain aligned to reduce weekly storage injections to significantly lower levels that might be implied by heavy emphasis on HDD or CDD accumulation.
"Holding a short position currently is being challenged by the dynamic of surplus contraction and this week's price strengthening appears to be discounting some additional significant reductions in the supply overhang for a couple more weeks. Although the spot trade is having difficulty keeping pace with the futures rally with the weak cash basis restricting curve strength, this doesn't appear to be a sufficient consideration to prompt much sell hedging required to force a significant price decline."
Gas buyers responsible for incremental supplies for power generation across the PJM power pool will have challenging weather and not much in the way of renewables to offset purchases. "Unsettled weather and cool conditions are expected into the weekend before a big warm-up early next week," said forecaster WSI in a morning report to clients. "A frontal boundary will remain the focal point for clouds along with areas of light rain and drizzle today.
"Wet weather and a northeast breeze will knock temps down into the 50s and 60s, and a storm system will develop and track up the East Coast tonight through Saturday, with even more rain, gusty winds and cool conditions across the Mid-Atlantic. A variable north-northwest wind will support modest wind gen through the weekend. After a brief decline, a developing southerly wind will boost wind gen by Tuesday. Output will generally range 2-3 GW."
In overnight Globex trading June crude oil rose 6 cents to $47.89/bbl and June RBOB gasoline rose a penny to $1.5741/gal.