September natural gas futures were set to open Wednesday close to even at around $2.971/MMBtu, holding onto most of the prior day’s gains as hot weather and storage deficits remain supportive for prices.
During Tuesday’s session, further hot trends in the forecast helped the prompt month break through resistance at $2.96 before testing the next resistance level at $2.98, according to EBW Analytics Group CEO Andy Weissman.
“A 1.2 Bcf/d day/day decline in production also contributed to the rally,” he said. Tuesday’s “gains are likely to encourage bulls to test resistance at $3.02 or higher. The near-term storage trajectory is expected to add fuel to the fire; as a result of this week’s forecast shifts, the storage deficit versus the five-year average is likely to continue to increase for the next four weeks, reaching new injection season highs.
“Given these dynamics, near-term, an increasing number of traders holding short positions could decide not to fight the tape, liquidating their positions,” Weissman said. “If a short-covering rally ensues, the September contract could reach as high as $3.08-3.12 before it goes off the board later this month.”
Still, production data continues to show output climbing to new highs. Genscape Inc. senior natural gas analyst Rick Margolin said Wednesday that following revisions to pipeline nominations, data affiliate Spring Rock’s daily production estimate showed Sunday’s output set a new record at 81.76 Bcf/d.
“Lower 48 production has been on a steady run the last two weeks with volumes running more than 2.2 Bcf/d above the summer-to-date average and nearly 3 Bcf/d above April levels,” Margolin said. “Most of the growth in recent weeks continues to be driven by the Northeast (particularly northeast Pennsylvania and Ohio), along with the Gulf of Mexico due to the return to service of several offshore platforms.
“Permian Basin volumes, however, topped out at 8.26 Bcf/d a few months ago, and the past week have been coming in about 0.12 Bcf/d lower than start-of-summer, indicating the basin is already contending with the long-awaited constraints getting gas out.”
As for the latest forecast, NatGasWeather said overnight data from both the Global Forecast System and European models trended slightly cooler to drop a few cooling degree days from the outlook.
“We don’t view this as much of a surprise since after so many successive hotter trending runs, a minor flip back cooler was due,” the firm said. “The coming pattern after this week is still considerably warmer than normal for much of the country into early September besides portions of the West.
“...The focus now is when will the hot high pressure weaken over the eastern half of the country, and the latest data suggests it’s not likely to occur until the end of the first week of September,” which would keep the year-on-five-year average storage deficit “near 600 Bcf for many more weeks to come,” NatGasWeather said. “Again, even with production continuously setting records week over week, deficits have still yet to improve a single Bcf.”
October crude oil was set to open about $1.14 higher at $66.98/bbl, while September RBOB gasoline was up 3.2 cents at around $2.0503/gal.