With a mild forecast beyond the first week of October, and with a run of large storage injections expected over the next few weeks, natural gas futures were down in early trading Tuesday. The November Nymex contract was off 0.9 cents to $2.321/MMBtu at around 8:40 a.m. ET.
The major weather models dropped a handful of degree days from the outlook overnight, primarily because of lower heating demand expected for the northern United States during the second week of October, according to NatGasWeather.
“Overall, the pattern is quite bearish and very comfortable across most regions most days through mid-October apart from brief cool shots” for the northern part of the country and some “localized heat” in the southern United States, the forecaster said.
Even with above normal cooling degree day totals “all summer long,” weekly inventory builds consistently came in above average, indicating “production is much too strong,” according to NatGasWeather.
“Until the supply/demand balance shows considerable tightening, the background state will remain bearish,” the forecaster said.
Looking at Monday’s price action, EBW Analytics Group analysts said support at $2.37 failed “with surprising ease.” They pointed to forecasts showing “very mild weather” to start the heating season and the potential for “much larger-than-normal injections” over the next few weeks.
“Both the European and American models forecast a shift to below-normal demand early next week, continuing for most of October,” the EBW analysts said. “The mild weather, coupled with the recent surge in production, is likely to push the year/year storage surplus toward 500 Bcf and eliminate the deficit versus the five-year average almost entirely for the first time this year.
“There is a chance, though, that by sometime next week forecasts will start to show a cooler shift toward the end of the 15-day window. Until then, downward pressure is likely to persist.”
Coming off last week’s bearish surprise, another triple-digit injection could be in store from this week’s Energy Information Administration (EIA) inventory report, according to Energy Aspects. The firm issued a preliminary estimate for a 112 Bcf injection.
Echoing other analysts, Energy Aspects pointed to flows on the recently in-service Gulf Coast Express pipeline as a likely culprit for the high-side miss since the intrastate line’s volumes aren’t visible in pipeline flow data.
“Given the massive miss of consensus versus the EIA print and a high injection into the South Central region, we have upwardly adjusted our production number by 0.4 Bcf/d,” the firm said. “The triple-digit build is likely also indicating some more industrial losses than we had previously estimated...Consequently, we have cut our estimate of industrial demand by 0.24 Bcf/d, compared to a cut of 0.1 Bcf/d forecast previously.”
November crude oil futures were up 54 cents to $54.61/bbl at around 8:40 a.m. ET, while November RBOB gasoline was up about 2.2 cents to $1.5881/gal.