With changes in the latest weather data trending warmer, natural gas futures were set to open marginally higher Tuesday. The July Nymex gas futures contract was trading at $2.363, up six-tenths of a cent, at 7:45 a.m. ET.
Futures prices continued to claw back from recent lows, although gains have been minimal as weather data has yet to fully reflect any significant heat. Overnight Monday, weather models in the six to 15-day time frame showed more upper level troughing in the western United States to reduce heat while allowing for more heat across the southern half of the country.
The change was more notable in the American data than in the European ensemble data, but it was present in both models, according to Bespoke Weather Services. The firm’s view is that these changes are correct, as it has been looking for some warmer changes into the final third of June based on changes in tropical forcing patterns.
“While we are not expecting an overly hot pattern, it’s possible that we still need to revise our gas-weighted degree days a bit higher in the 11- to 15-day time frame to allow for more heat in the southern half of the nation,” Bespoke chief meteorologist Brian Lovern said. “The El Niño state remains in place, so sustaining heat may still prove difficult, but we are at least confirming more variability as opposed to this week’s cooling.”
Indeed, global wind patterns and the tropical Madden-Julian Oscillation are expected to limit warming across the eastern half of the United States, where the forecast falls into the normal category, according to Radiant Solutions. However, risks are mixed for the eastern part of the country, where background signals pointed cooler while bias-corrected model data leaned warmer.
Above-normal temperatures are expected to remain focused in parts of the West, while there are risks that the Northwest could be cooler than forecast based on the models, the forecaster said.
As for production, data showed a drop early Tuesday, starting off lower than Monday’s initial reading, according to Bespoke. Liquefied natural gas (LNG) exports were also lower, with Cameron LNG still pulling no gas and Sabine Pass LNG pulling a little less than it had been.
“Weather-adjusted burns are still solid, though no stronger than they were last week,” Lovern said. “In total, the data still points to rather tight daily balances,” but the market will want to see tightness confirmed in this week’s storage data after the big bearish misses the last couple of weeks.
Recent small gains aside, prices remain at levels that will stimulate additional demand and discourage additional supply through year end, according to Mobius Risk Group. Obfuscating the impact of a decline from near $2.75/MMBtu to sub $2.50 are the expectations for mostly cooler-than-normal weather through mid-June.
“However, heat intensity in the southern U.S. has materially escalated in the past week and considering price elasticity in the power stack is heavily skewed to the South, there could be changes in market sentiment before the July contract rolls off the board,” Mobius said.
Crude oil futures were trading 66 cents higher at $53.92/bbl, and RBOB gasoline futures were trading 2 cents higher at $1.751/gal.