September natural gas futures were set to open a penny lower at $2.772 Wednesday, continuing a sell-off that started late in Tuesday’s session as cooler trends started showing up in weather models.
The overnight weather data held cooler trends from Tuesday with a weather system tracking across the U.S. Midwest and Northeast Aug. 8-10, and was also a touch cooler going into mid-August in all models, thus seen cooler trending overall as it shed several cooling degree days (CDD), NatGasWeather said.
More specifically, a weather system with showers and cooling is forecast to sweep across the Midwest and east-central United States during the next few days, but then is expected to fizzle out late in the week as it runs into upper high pressure building across the East Coast off the Atlantic Ocean. Meanwhile, it is expected to remain very hot over the West with highs reaching the 90s to as much as 115 degrees, making for strong regional demand, the forecaster said.
Hot high pressure is expected to expand across most of the country this coming weekend into next week, aside from the northwestern United States, resulting in a return to strong national demand as highs reach the upper 80s to 100s.
Beyond next week, a weather system is expected to weaken the ridge over the Midwest and Northeast Aug. 8-10, dropping highs into the 70s and 80s as showers sweep through for lighter demand; this is where the latest weather data during the last 24 hours has shown cooler trends, NatGasWeather said.
“The weather data had been bouncing between warmer and cooler trends Aug. 11-15 the past few days” but was a little cooler in Tuesday’s midday data and also again in the latest overnight data to lose several CDDs. It’s still expected to be a rather warm pattern Aug. 11-15 as upper high pressure rebounds to dominate most of the country with highs of 80s to 100s, “although a touch less impressive in recent weather model output to lose a little demand,” the forecaster said.
Meanwhile, a third straight bearish monthly production report from the Energy Information Administration (EIA) also weighed on the market late Tuesday, EBW Analytics said. The EIA reported that in May, dry natural gas production increased year over year, the 12th consecutive month it has done so.
The preliminary level for dry natural gas production in May was 2,491 Bcf, or 80.4 Bcf/d, which was 8.6 Bcf/d (12.0%) higher than the May 2017 level of 71.8 Bcf/d. The average daily rate of dry natural gas production for May was the highest for any month since EIA began tracking monthly dry production in 1973.
EBW CEO Andy Weissman said the first two days of trading this week saw a battle between extreme hot weather during weeks 2 and 3 and expectations that production will continue to surge in August and September as new pipelines come online. “So far, despite forecasts for exceptionally hot weather, rising production has won out, blocking further increases.”
Near term, as extreme hot weather drives up cash prices, resistance at $2.82-2.86 could be tested again. “The inability to move prices higher despite blistering hot weather, however, is extremely bearish -- suggesting that significant further losses are likely when red-hot weather fades,” he said.
Crude oil futures were trading about $1 lower at around $67.74/bbl, while RBOB Gasoline futures were trading about 2.4 cents lower at $2.0569/gal.