October natural gas is set to open 2 cents higher Wednesday morning at $2.99 as traders balance near-term cooling with an ever more active tropical storm dynamic. Overnight oil markets were mixed.
Weather forecasts turned incrementally cooler overnight. "While Irma still stands to complicate the Southeast and East Coast forecasts next week (cooler risks on highs and warmer risks on lows), the trend overnight was to shift the storm away from Gulf concerns, and we need another 24 hours of this to feel more confident about it," said Matt Rogers, president of Commodity Weather Group in a morning report to clients.
"Otherwise, today's changes are in the slightly cooler direction for the Midwest to South in the six- to 10-day and nearly flat toward both coasts. The 11-15 day sees mixed minor changes for the U.S. and southern Canada as the pattern shifts toward a seasonal to slightly above normal look and the models debate the details."
He added that both the American and European models suggest a "cool push" for the eastern third of the U.S. towards the end of the 11- to 15-day period.
Analysts see the market becoming more vulnerable to potential supply issues than forecast weather changes. "Hurricane Harvey's impact is translating to significantly cooler temperatures across the southeast quadrant of the country than would otherwise be the case," said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients. "It also appears that hurricane Irma could sustain this process by forcing some below normal temperature trends across the entire eastern third of the nation later next week and beyond. As a result, focus has shifted away from a negligible supply surplus and toward the possibility that supplies could remain ample as the upcoming shoulder period proceeds.
"However, we feel that the magnitude of Irma could provide a much larger threat to Gulf of Mexico (GOM) gas production alleys than was the case with Harvey. And storms behind Irma could also eventually impede GOM output. And finally, the impact off of Harvey on shale production remains highly uncertain and we feel that surprises are more apt to develop on the bullish rather than the bearish side. In any event, we are still viewing this market as highly sensitive to any supply disruptions not offset by demand destruction. ...[A]ny non-weather related loss of even a marginal amount of supply is capable of spiking nearby futures by as much as 15-17 cents from yesterday's close. As a result, we are maintaining a bullish bias and would suggest holding any October long positions for now."
In its 8 a.m. report the National Hurricane Center (NHC) reported that dangerous Hurricane Irma was 15 miles west of St. Martin and holding winds of 185 mph. It was moving to the west northwest at 16 mph and if NHC projections are correct U.S. landfall has shifted slightly east to the southernmost tip of Florida.
As if Irma weren't enough NHC also reported Tropical Storm Jose was 1,255 miles east of the Lesser Antilles and was holding winds of 60 mph. It's moving to the west at 13 mph, and NHC expects it to become a hurricane Wednesday.
What used to be a tropical depression in the southern GOM is now Tropical Storm Katia. It's 105 miles east of Tampico and is sporting 40 mph winds for now. It's moving to the east southeast at 2 mph. NHC says "some strengthening" is expected.
In overnight Globex trading October crude oil rose 51 cents to $49.17/bbl and October RBOB gasoline fell 3 cents to $1.6738/gal.