May natural gas is expected to open a penny lower Friday morning at $4.64 as traders consolidate gains from Thursday and expect a typical soft end-of-week trading in the physical market. Overnight oil markets were mixed.
Market observers saw Thursday's response to the thin 4 Bcf gas storage build as "...exaggerated, but the lift above our expected resistance at $4.61 appeared to trigger some additional speculative short covering," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday to clients. "We had suggested taking profits at the $4.61 level or higher, and we are leaving open the likelihood of a reaction back down into the $4.50-4.60 zone where we will look to establish long holdings. Looking out through next week, [Thursday's] action reinforced our ultimate expectation for a climb up to the $4.80 area.
"Storage at 826 Bcf is now roughly 1 Tcf below the five-year average. While we don't expect the market to close this entire gap by next fall, we do feel that at least 70% of this shortfall will need to erase in order to provide adequate winter supply. This narrowing in the shortfall of some 100 Bcf/month will continue to require an elevated pricing environment, even allowing for structural uptrends in production. All in all, we are maintaining a bullish trading opinion and we suggest working this market strictly from the long side."
Going into the weekend neither the bulls nor bears have a lot to hang their hats on, weather-wise. Commodity Weather Group in its morning six- to 10-day outlook shows below-normal temperatures across the eastern half of the country, with some above-normal temperatures in the Mountain West, California and Pacific Northwest. Market-wise, there may be some slowing in the rate of injections, but large-scale weather events this time of year are unusual.
"Great agreement continues on next week's large scale cool to cold outbreak from a macro standpoint, but the various ensembles continue to disagree on the intensity details of the event with the American and Canadian ensembles still cooler than our outlook and the European guidance," said Matt Rogers, president of the firm. "Given the time of year with bigger limitations on cold air capabilities, we continue to prefer the more cautious route offered by the European guidance.
"Either way, the modeling agrees on moderation in the pattern late next week into the 11-15 day period with still a more variable situation and lower forecast confidence. The best agreement is on continued warmer than normal weather in the Southwest and California. Less agreement is still noted in the East, but the range is mainly between more seasonal or slightly cooler levels yet again."
Physical traders trying to move gas into New England may find it more challenging as maintenance is scheduled for Algonquin's Southeast Compressor station. Industry consultant Genscape reports that the work is "scheduled to start on Monday the 14th and lasts till the 27th. Capacity through Southeast will be reduced from a seasonal capacity of 1,200,000 Dth/d to approximately 1,065,000 Dth /d. Flow through Southeast CS averaged 1,300,000 Dth/d in the past week with an operational capacity of 1,418,000 Dth/d. This maintenance will likely force AGT [Algonquin Gas Transmission] to restrict interruptible and potentially secondary firm out of path and secondary in-path firm services for about 250,000 Dth/d.
In overnight Globex trading May crude oil fell 15 cents to $103.25/bbl and May RBOB gasoline gained a cent to $3.0150/gal.