July natural gas is expected to open 4 cents lower Monday morning at $4.49 as traders grapple with a deteriorating technical picture and forecast warmth seems tepid at best. Overnight oil markets were mixed.
Risk managers see the market going in either direction from a fundamental standpoint, but they counsel holding on to short hedges. "However, as we near the 4th of July weekend, temperatures are expected to be elevated. A larger than expected storage injection of 113 Bcf (109 Bcf expected) was slightly bearish for natural gas this week," said Mike DeVooght, president of DEVO Capital in a weekly summary for clients last week. "We have had large builds for the past seven weeks, helping to close the gap between last year's levels and current levels. Natural gas production remains elevated.
"Fundamentally, you can make a case in either direction, but for hedgers, we still feel natural gas rallies near the $5.00 level should be used as an opportunity to lock in some forward pricing. On a trading basis, we will hold current positions." DeVooght suggests that trading accounts and end-users stand aside, but producers and those with exposure to lower prices should hold short the July-October portion of a summer strip sold earlier at $4.20 to $4.30 as well as a second summer strip sold at $4.50. The summer strip settled Friday at $4.540, according to DEVO figures.
Market technicians see a looming decline if the market can't post a meaningful advance relatively soon. In a weekly summary for clients, Walter Zimmermann, vice president at United ICAP, notes that his target last week was $4.48 and "natgas fell to a $4.516 low and closed weak. A $4.515 to $4.460 low is still entirely consistent with a bull market correction in a continuing advance, [however] bears need a break below $4.320 to have any case.
"This $4.320 is 0.852 of the entire $4.221 to $4.886 decline. From last week's $4.516 low, bulls need a break above $4.605 for it to look like bottoming action. The bearish case rests on the fact that multiple attempts have failed to give a weekly close above the pivotal $4.760 resistance. This keeps the door open for a break below the $4.221 low. If that low breaks, [we] would expect a retest of the up trend support line from the $1.902 low. That line cuts at 4.000 by mid-July."
Forecasters see a slightly warmer six- to 10-day period than before. Commodity Weather Group in its Monday morning six- to 10-day outlook shows above-normal temperatures extending along an elongated ridge from New York state to eastern Kansas and southern California. "The weekend saw last week's 11-15 day burst of warming for the Midwest and East progress forward steadily, but there were some cooler change on average," said Matt Rogers, president of the firm.
"Highs in the Midwest still peak in the low to mid 90s at the beginning of the next workweek (June 30), which is similar to last Friday's forecast. The East sees temperatures peak around the middle of next week (Wednesday, July 2) in the low to mid 90s, but it was here that the cooler changes were a little more pronounced. Looking further out into the forecast, the 11-15 still shows the heat in the east fading as ridging once again pops up across the Western states. The 11-15 day, overall, looks to be a variable, but warm-dominated period still."
In overnight Globex trading July crude oil eased 3 cents to $106.80/bbl and July RBOB gasoline rose by a half cent to $3.1340/gal.