August natural gas is set to open 3 cents higher Friday morning at $2.92 as traders factor in a modest increase in forecast cooling loads. Overnight oil markets fell.
Overnight weather models turned ever so slightly warmer. "Changes to the six- to 10-day period forecast are mixed," said WSI Corp. in its morning report to clients. "There are warmer changes across the South and portions of the Mid Con, but the Northeast, Texas and West are generally cooler.” Continental United States population-weighted cooling degree days “are up 1.1 to 64 for the period, which are 8.4 above normal.
"The case can be made for risks in either direction given the inconsistency and divergent solutions with the operational model runs.”
Although prices have recovered a small portion of the early-week 20 cent drop, the thinking is that the weather will have to become significantly more aggressive to prompt a significant price advance. "[W]e have been emphasizing that temperature deviations from normal don't appear sufficient to sustain significant price advances," said Jim Ritterbusch of Ritterbusch and Associates in a morning report to clients.
All eyes will be on the 10:30 a.m. EDT release of storage data delayed a day by the holiday, and "industry ideas are favoring an injection of around 64 Bcf that would imply a slight decline of about 2 Bcf in the supply surplus against five year average levels. We feel that a 50 handle increase will be needed in order to sustain today's early rally. We also believe that further contraction in the supply overhang will be seen in next week's EIA [Energy Information Administration] report given this week's warmer than normal temperatures.
"But unless this weekend brings some significant bullish adjustments to the weather views that will be extending into the fourth week of this month, further advances will likely prove limited for a few more days. But we have shifted our stance from neutral to bullish as we suggested purchases of nearby futures earlier this week on pullbacks into the $2.87-2.92 zone. This change in stance was predicated largely on the ongoing narrowing in the supply overhang and our perception that the sharp price plunge seen earlier this week was simply overcooked with our technical indicators swinging into oversold territory."
Traders will be looking for a storage build in the mid-60 Bcf range. Last year 38 Bcf was injected and the five-year average stands at 66 Bcf. Kyle Cooper of ION Energy calculates a 66 Bcf addition, and Ritterbusch and Associates is looking for a 61 Bcf build. A Reuters survey of 21 traders and analysts showed an average 64 Bcf with a range of +57 Bcf to +68 Bcf.
In overnight Globex trading August crude oil fell 93 cents to $44.59/bbl and August RBOB gasoline shed 3 cents to $1.4997/gal.