While sizzling temperatures sometimes north of 100 degrees cooked much of the East for a third consecutive day on Wednesday, the bullish news seemed to be lost on natural gas futures traders as August futures retreated for much of the day.
The prompt-month contract recorded a low on the day of $4.555 before closing the regular session at $4.565, down 11.7 cents from Tuesday's finish.
It appeared that the bulls were in the corral Wednesday as modest storage build predictions for Thursday's report failed to generate a rally. Some market watchers expect a lower-than-normal build, thanks to Hurricane Alex and last week's Gulf of Mexico natural gas production shut-ins, which were pegged at 3-4 Bcf (see Daily GPI, July 7).
"The bulls have a lot going in their favor right now, but they haven't made a move," said Steve Blair, a broker with Rafferty Technical Research in New York. "In addition to the shut-ins and the ridiculous heat that is engulfing the East, we also have another tropical disturbance to keep an eye on. I'm pretty surprised we're not trading closer to $5 with these current fundamentals, but it looks like we're stuck in this $4.500 to $5 range."
Looking to Thursday's natural gas storage report for the week ending July 2, most estimates are for an injection in the low 70s Bcf. "While we lost a little bit of production last week to Hurricane Alex, it looks like the industry is expecting a storage build inline or only slightly below historical comparisons," he said. "The Dow Jones survey is looking for a 73 Bcf build for the week ending July 2, which is on target with last year's date-adjusted 74 Bcf for the week, and just under the 80 Bcf five-year average."
A Reuters survey of 24 industry players produced an injection range of 62 Bcf to 84 Bcf with an average expectation of a 72 Bcf addition.
Blair said major support comes in at $4.490 but the $4.530 level was the major breakout level from where the market launched higher. "It looks like we'll trade back and forth between roughly $4.500 and $5 unless we get a surprise in the storage number or some real trouble in the Gulf," he said. "On the whole, I definitely see more upside potential than downside during this time of year."
Looking forward on the weather front, forecasters are expecting a second, though slightly less intense, blast of heat to hit the Northeast next week. In its six- to 10-day forecast MDA EarthSat noted that "the biggest changes in this period were focused across the Northeast and Mid-Atlantic, which trended hotter since Tuesday's forecast. While the forecast is hotter, the next round of heat should fall short of peak heat levels currently in place while under less intense ridging. The Northwest will gradually trend cooler during this period as the PNA [Pacific North American teleconnection] switches signs back towards negative. Models are in good agreement on the slow weakening of the Northwest ridge. The Southwest, meanwhile, should trend a bit hotter mid to late period as a strong upper ridge builds overhead."
AccuWeather.com was forecasting that the 101-degree high in Philadelphia Wednesday would drop to 94 degrees on Thursday. The normal high in Philadelphia on Thursday is 85 degrees. Washington, DC's 100-degree Wednesday high is also predicted to ease to 94 degrees, which is still well ahead of the seasonal norm of 88 degrees.
Analysts also see hot weather and tropical developments as the near-term price determinants and as a result conclude that the elements for a bull market are in place. "Because of those factors, we see reasons to expect prices to strengthen over the next two months. Hurricanes and heat are what natural gas bull markets thrive upon, and this year has several elements suggesting that hurricanes and heat will be common," said Peter Beutel, president of Cameron Hanover.
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