October natural gas futures were trading about 3.8 cents higher early Friday morning at around $2.912, with guidance further warming overnight and the market still processing the implications of an inventory build that surprised to the high side.
The Global Forecast System (GFS) trended notably hotter overnight to match the European model’s warmer outlook, according to NatGasWeather.
“The data continues to be slower in how fast the upper ridge weakens during the second week of September,” adding numerous cooling degree days (CDD) to the outlook, the firm said. Both the GFS and European models trended hotter overnight “by stalling the fizzling of late summer heat due to high pressure holding strong across the eastern, central and southern U.S.’’
NatGasWeather’s team said trade Friday “will be telling as to true market sentiment and whether bulls continue to step in to buy the recent selloff, which they have so far done...We expect the midday data will be quite important to market trade as major players position ahead of the long holiday weekend, especially if it were to trend further hotter.”
The Energy Information Administration (EIA) reported a 70 Bcf injection into inventories for the week ending Aug. 24, well outside of market consensus that had clustered around a build in the mid-60 Bcf range. The 70 Bcf build was significantly larger than both last year’s 32 Bcf build for the week and the five-year average injection of 59 Bcf.
Despite the bearish miss, natural gas bulls managed to hold their ground, helped by the lingering heat.
“The announcement did help slightly narrow the inventory deficits to last year and the five-year average,” Genscape Inc. senior natural gas analyst Rick Margolin noted Friday. “However, prospects for those deficits to continue eroding will face challenges. Though we show Lower 48 production having broken through the 82 Bcf/d mark and continuing to establish new daily record highs, demand remains very strong” on a combination of above-normal heat, strong liquefied natural gas exports and pipeline gas to Mexico.
“The heat is showing few signs of letting up,” Margolin said. “Genscape meteorologists are forecasting national population-weighted CDDs next week will get near 131 CDDs, about 33 CDDs above normal for this time of year, with notable heat returning to the Midwest, Northeast and Southeast demand markets. Our preliminary estimates for the next three storage numbers are greater than the five-year averages but smaller than last year’s same date injections.”
After prices rebounded modestly on hotter forecasts heading into Thursday’s session, EBW Analytics Group CEO Andy Weissman said once EIA published the “extremely bearish” 70 Bcf figure, heavy selling seemed likely.
“The sell-off that occurred, however, did not last long,” Weissman said. “Instead, after support for the October contract held at $2.84, prices quickly rebounded, returning to their previous level...Yesterday’s performance was due in part to reluctance by traders to take new positions before the holiday weekend.
“The weak initial surge higher suggests that the market has little appetite for a strong rally,” he said. “The October contract could probe higher today...Any gains are likely to be limited, though, and not last long.”
As of around 8 a.m. ET Friday, October crude oil was trading about 9 cents lower at around $70.16/bbl, while September RBOB gasoline was trading fractionally higher at around $2.1515/gal.