The expiring September natural gas futures are expected to open 2 cents higher Tuesday morning at $2.94 as traders turn their attention more to Harvey-driven supply disruption than falling demand. Overnight oil markets gained.
The National Hurricane Center in its 7 a.m. CDT report said Harvey was still packing winds of 45 mph and was located about 145 miles south southwest of Port Arthur, Texas. "Harvey is moving toward the east-northeast near 3 mph, and this motion is expected to continue through this morning. A turn toward the northeast is expected later today and tonight, followed by a turn toward the north-northeast on Wednesday. On the forecast track, the center of Harvey is expected to be just offshore of the middle and upper coasts of Texas through tonight, then move inland over the northwestern Gulf coast on Wednesday."
Nationwide weather models see a warm West and cooling East. "The forecast sees a mix of changes in this period, trending additionally hotter in the West and cooler in the Eastern Half," said MDA Weather Services in its six- to 10-day morning outlook. "In the West, much to even strong above normal temperatures are forecast throughout this period, including peaks in the low 90s in Seattle, near 100 in Portland and in the mid 90s in Burbank.
"Farther east, however, temperatures at and slightly below normal are forecast on average in the Midwest, South and East, including some much belows in the second half associated with Canadian high pressure dropping southward and into the Midwest."
Analysts see demand destruction from Harvey and diminished cooling degree days (CDDs) priced into the market. "This market continues to consolidate as if hurricane Harvey had never developed," said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients. "The reduced importance of Gulf of Mexico production within the grand scheme of U.S. output has sharply reduced the need to inject hurricane premium. And while the cooling effects of the storm are impacting air conditioning requirements in southern regions, the below normal trends across most of the U.S. at this late stage of the CDD cycle have already been factored in.
"As a result, we feel that a large amount of uncertainty related to onshore gas production remains and that still may need to be priced in via higher futures. And the fact that the supply surplus against five year averages has been dramatically reduced by almost 90% since earlier this year to only 45 Bcf is also a supportive consideration. While this modest overhang may not be capable of triggering a major price advance, we feel that any additional supply disruptions next month could easily trigger a price advance in October futures to about the $3.14 area.”
In overnight Globex trading October crude oil rose 12 cents to $46.69/bbl and October RBOB gasoline added a penny to $1.5860/gal.