August natural gas futures were set to open Thursday about 1.6 cents lower at around $2.813/MMBtu, with the market looking ahead to a potentially leaner than average Energy Information Administration (EIA) storage report that could help gauge the impact of recent heat.
Estimates for this week’s EIA report point to a build well shy of the five-year average. A Reuters survey of traders and analysts on average showed respondents anticipating a 56 Bcf build for the week ended July 6, with responses ranging from 47 Bcf to 67 Bcf. A Bloomberg survey produced a median 55 Bcf injection, with a range of 34 Bcf to 67 Bcf.
IAF Advisors analyst Kyle Cooper predicted a 50 Bcf build, while Intercontinental Exchange EIA Financial Weekly Index futures settled Wednesday at an injection of 49 Bcf.
Last year, EIA recorded a 59 Bcf build, and the five-year average is an injection of 77 Bcf.
“It was warmer than normal over most of the country besides portions of the Northwest and South, exceptionally hot across the Northeast and Great Lakes where mid-90s were observed, although tricky with the Fourth of July holiday,” NatGasWeather said. “Our algorithm sees a bullish outcome at 47-48 Bcf.”
As for the latest weather data, the firm said overnight guidance failed to trend hotter for the last week of July, “seeing weather systems tracking across the northern and eastern U.S. with mostly comfortable conditions, although hot over the rest of the country with 90s and 100s. Essentially, still not impressive enough for the market’s liking across the Northeast late next week into the last week of July.
“...The longer it takes for hotter maps to gain traction over the East, the more likely the natural gas markets get impatient by expecting record production will steadily ease deficits starting in a couple weeks,” making a sustained rally unlikely barring a significant bullish miss from EIA.
The prompt month “showed surprising strength” during Wednesday’s session, when it rallied 4.1 cents, partly aided by short-covering ahead of the upcoming EIA storage data, according to EBW Analytics Group CEO Andy Weissman.
“In addition, traders may have been reacting to pipeline scrape reports that showed a significant falloff in production,” Weissman said. “The decline in production most likely was due to pipeline maintenance and outages at gas processing plants. This could persist for another week or two, but has no longer-term implications for growth in production in the injection season.
“Now that the August gas contract has pushed back above $2.82, it would not be surprising if it tested resistance at $2.88 sometime in the next few days,” he said. “This morning’s storage report could also play a role.”
Looking at the technicals, the bulls have an opportunity with support holding in the $2.795-2.792-2.775-2.774 area, according to ICAP Technical Analysis analyst Brian LaRose.
“We will need a breach of $2.844 and a shift in the technicals to open the door for a recovery though,” LaRose said. “Accomplish this, then we can start raising the bar. Fail to climb above $2.844 and the trend will continue to point lower. We still peg $2.752-2.730 as the next step down should this reprieve prove to be short lived.”
August crude oil was set to open about 48 cents higher at around $70.86/bbl, while August RBOB gasoline was trading about a penny higher at around $2.0722/gal.