June natural gas is set to open 2 cents higher Tuesday morning at $4.49 as traders balance expectations of a plump gas storage injection report on Thursday with the outlook for above-normal temperatures in major energy markets next week. Overnight oil markets were narrowly mixed.
Analysts are doubtful that Monday's gains can continue, at least until Thursday. "While this market put in a strong performance at the start of this new week, we are skeptical as to the ability to sustain the advance much beyond [Monday's] highs," said Jim Ritterbusch of Ritterbusch and Associates. "Weekend updates to the temperature views that we monitor suggest mild patterns largely devoid of significant HDDs or CDDs. We still see mainly a range-bound trade within the parameters of $4.30-4.55 with values gravitating at around the $4.45 area during the next couple of sessions prior to the usual volatility spike on Thursday. We will be looking for a significantly up-sized injection of 106 Bcf that would compare with the prior week's 97 Bcf build and 90 Bcf seen a year ago and within the five-year averages."
Look for stout production and hot weather to duel for market control over the upcoming cooling season. "While such a figure may not be enough to push values back to our expected $4.29 support level, it should prove sufficient to swing June futures back down in to the $4.30-4.40 zone where we will advise probing the long side on a scale-down. We still view an accelerated pace of production as a bearish dynamic that should remain in place well into the summer in the process of narrowing the large storage shortfall. But at the same time, some strong price up-spikes will also lie ahead once the hot weather factor evolves as a larger pricing ingredient," Ritterbusch said in closing comments to clients.
Technical analysts are looking for at least a short-term selling opportunity. "[We] will be counting any rally as an opportunity to sell; our only concern is when to pull the trigger," said Brian LaRose, technical analyst at United ICAP. "If a minor correction is in progress from the $4.289 low, natgas should not get back above $4.679-4.757. However, if a larger degree ABC pattern is unfolding from the $4.221 low, there is room to $4.920-5.089 minimum. Will need to rely heavily on the short-term technicals for a sell signal."
Tom Saal of INTL FC Stone in Miami in his work with Market Profile looks for the market to test Monday's value area at $4.522-4.488 before moving on and testing $4.442-4.424. He says "maybe" the market will test $4.789 to $4.731.
In overnight Globex trading June crude oil rose 3 cents to $102.64/bbl and June RBOB gasoline eased a cent to $2.9564/gal.