June natural gas is set to open 4 cents lower Monday morning at $4.49 as traders discount most concerns that timely storage refill will be a significant problem. Overnight oil markets rose.
For the moment, low storage inventories do not seem to be an issue. "The sentiment seems to be that storage levels will replenish themselves by the start of heating season," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "Fundamentally, it has been our feeling that the natural gas market is becoming much healthier than it has been in quite some time. But the mending process will occur over a long period of time. The fact that natural gas rig activity has been slipping is supportive, but the lack of any significant demand upticks, is negative," he said in a weekend note to clients.
"On a trading basis, we feel selling the summer above $4.50 for producers is an attractive selling level. It could be that in the future the mid to high 3s will be the new floor on the breaks. We will continue to hold our current short positions for hedges.
DeVooght counsels trading accounts to hold on to a short June futures position (rolled from an initial April sale at $5.00-5.10) and said end-users should stand aside. Producers and those with exposure to lower prices should continue to hold a short June-October at $4.2-4.30 (initial position) and also hold short the summer strip at $4.50 (increased position). The summer strip settled Friday at $4.527.
Near-term weather is active, with Denver Monday morning sitting on 30 degrees with a high expected of 42, which is 24 degrees below normal. However, in the next 15 days WeatherBELL Analytics expects accumulations of both heating and cooling degree days to be below normal. "The major shot of cold is coming on time. The five-day means of the ECMWF [European model] are well behaved from last week's ideas," said meteorologist Joe Bastardi in a Monday morning report to clients. "The bulk of the major late-winter storm will be done in Colorado after today. The ECMWF still has 17 degrees F at Denver tomorrow night, which given the coldest ever in May was 21 degrees on May 1, the model is probably a bit too cold. It is an outrageous event nonetheless!
"The point here is the cold and snow was not hype. We do get close to 90 degrees in [Washington, DC], but it appears worries from some sources last week for 95 degrees were too much."
Tim Evans of Citi Futures Perspective sees institutional selling pressure. "[To] the extent that money managers are holding larger net long positions than they would like, we see risk of speculative long liquidation on top of the weakening in the physical market. We think this could send nearby natural gas futures back down to the $4.25 area last seen in early April, but we would rule out a test of the $4.00 mark last seen in early January."
In overnight Globex trading June crude oil added 26 cents to $100.25/bbl and June RBOB gasoline rose two cents to $2.9207/gal.