November natural gas futures were trading close to even at $3.227/MMBtu a little after 8 a.m. ET Friday as traders were left to weigh slight cooler trends in overnight forecasts against estimates of some hefty demand destruction in the Southeast and Mid-Atlantic from former Hurricane Michael.
Both the Global Forecast System and European models came in slightly cooler overnight to add a few heating degree days to the outlook, according to NatGasWeather.
“What will be most important over the weekend break is when the coming barrage of weather systems and associated cold blasts in the northern and east-central U.S. will cease, which the latest data suggests won’t be until the end of the month” aside from brief breaks in between systems, NatGasWeather said. “Essentially, a rather bullish pattern continues.
“...After the weekend break, if the weather data continues to show high pressure over the West providing a nice ramp for cooler Canadian air to slide into the Midwest and East, bullish sentiment will continue...With hefty deficits set to increase even further off the coming cool shots, the background state will remain bullish into the foreseeable future. The question is really what do the markets view as fair value since they seem to be struggling with it, evidenced by daily 10-cent price swings.”
In terms of the technicals, from the bulls’ perspective, the “must-hold” support held during Thursday’s 6.2 cent sell-off, according to ICAP Technical Analysis analyst Brian LaRose.
“The structure of the price action off the $3.368 high” leaves open the potential for a run up to $3.419-3.494, LaRose said. “To derail the case for another pop to fresh highs the bears must force natural gas below $3.166-3.146-3.133. Looking for a deeper retracement of the $2.752 to $3.368 advance at minimum if they can make that happen.”
Meanwhile, Genscape Inc. estimated roughly 4 Bcf/d of demand destruction Friday in the wake of former Hurricane Michael, which had weakened into a post-tropical cyclone and moved offshore in the Mid-Atlantic as of 5 a.m. ET.
After charting a path through the Carolinas Thursday, “Tropical Storm Michael has severely impacted demand across the Southeast and Mid-Atlantic,” Genscape analyst Josh Garcia said. “Our total demand sample from the seven most affected states has fallen from a 30-day peak of 16.3 Bcf/d to 12.1 Bcf/d” as of Friday. “The biggest losses are along the eastern Gulf Coast and in North Carolina.
“Almost all of this 4.2 Bcf/d drop in demand is comprised of losses in power burns, as roughly a million residents are without power from Mississippi to Virginia. However, the immediate window after hurricanes can be bullish for gas in the short-term as power demand has recovered quickly in the wake of the last few hurricanes,” with startup times for gas plants faster compared to coal and nuclear facilities.
A little after 8 a.m. ET, November crude oil futures were trading 60 cents higher at $71.57/bbl, while November RBOB gasoline was up about 1.3 cents to $1.9461/gal.