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June Natural Gas Called Lower After Thursday’s Rally

The June natural gas contract was set to open Friday about 1.4 cents lower at around $2.845/MMBtu after rallying Thursday despite a larger-than-average Energy Information Administration (EIA) storage report that seemed to offer little support for the bulls.

June rallied 4.4 cents Thursday after EIA reported a 106 Bcf injection into Lower 48 gas stocks for the week ending May 11, close to consensus estimates and larger than both last year’s 64 Bcf build and the five-year average 87 Bcf injection.

“Compared to degree days and normal seasonality a 106 Bcf build appears tight versus the prior five years by 1.5 Bcf/d,” Genscape Inc. analyst Rick Margolin said. “Relative to the previous week, total power generation was up 17 average GWh. Total renewable generation was down 7 average GWh as wind was down around 9 average GWh week/week and nuclear generation up by 2 average GWh.

“Total thermal generation was up 24 average GWh week/week,” Margolin said. “Gas generation was up around 16 average GWh for an increase of 3.2 Bcf/d gas burn.”

EBW Analytics Group CEO Andy Weissman said Thursday’s price response to the EIA report came as a surprise.

“On Thursday of last week, after EIA reported an 89 Bcf injection -- 1-3 Bcf below expectations -- the June contract gained 7.7 cents,” suggesting the market believed future injections could miss to the low side, Weissman said in a note to clients Friday. But instead of giving back the prior week’s gains on this week’s larger injection, “after there was no immediate selloff,” natural gas “started to rise, gaining steadily throughout the day.

“In a market which already was showing signs of wanting to break higher, Thursday’s gains are likely to trigger a further move up today and/or early next week,” Weissman said. “The upside potential, however, most likely is limited. From a demand standpoint, the above-normal” cooling degree days “that have helped push prices higher are largely offset by below-normal” heating demand, “keeping cash prices too low to spark a sustained rally.”

Turning to weather, forecasts from Radiant Solutions Friday continued to show widespread above-normal temperatures across the Lower 48 over the next two weeks.

In the six- to 10-day period, “hotter changes are made in the Southern Plains/Texas, but little change is noted most elsewhere in the period, which continues to feature widespread warm anomalies” except for parts of the Southwest and the Southeast, the firm said.

Radiant’s 11-15 day outlook issued Friday saw warmer changes to parts of the West and cooler changes in the Midwest, “but like the previous outlook features widespread above normal coverage from the West to the Midwest and near normal temperatures in parts of the South.”

From a technical standpoint, analysts with Rafferty Commodities Group told clients Friday that “recent activity has seen narrowing ranges overall, but Thursday’s bounce was a welcome opportunity to trade the market up to one of our major resistance areas” at $2.864. “If the market can finally punch through the $2.864 level, our next targets are the $2.893 and $2.950 areas.” Failing to break through $2.864 “would tell us more consolidation is likely ahead.”

June crude oil was set to open about 8 cents lower at around $71.41/bbl, while June RBOB gasoline was trading about 1.5 cents higher at around $2.2578/gal.

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