August natural gas is expected to open 3 cents lower Wednesday morning at $4.42 as traders factor in the likelihood of another voluminous storage report on Thursday along with the possibility of a demand-dampening storm impacting the East Coast. Overnight oil markets retreated.
Tim Evans of Citi Futures Perspective sees Tropical Storm (TS) Arthur as having little impact. He said Tuesday afternoon that it "is unlikely to have much of an impact even on the demand side of the market...Changes to the temperature outlook were mixed compared with Monday, with the week ending July 11 looking somewhat warmer and more supportive, but the week ending July 18 looking cooler than a day ago."
Evans forecasts a storage build of 106 Bcf in Thursday's Energy Information Administration inventory report and "estimates we've seen so far suggest expectations may be anchoring in the 98-100 Bcf zone. Net injections at that level would generate bearish comparisons with both the date-adjusted 75 Bcf build from a year ago and the 68 Bcf average. Our model generated a larger 106 Bcf refill, which we view as representing at least some risk of a bearish surprise.
"The big picture has been stable, with the year-on-five-year average storage deficit declining as it has for the past 10 weeks, confirming that the market is becoming better supplied on a seasonally adjusted basis. As the deficit declines, we see the upside potential for prices shrinking in tandem, and the downside risk expanding. We continue to see a chance that nearby futures could test the $4.00-4.25 range in the weeks ahead."
Tropical Storm Arthur, though not a threat to Gulf of Mexico infrastructure, is poised to become a major weather event. Its primary impact outside of physical damage and potential loss of life could be a loss of demand should the storm cause power outages and moderate temperatures at major population centers. At 8 a.m. EDT, the National Hurricane Center reported Arthur at 100 miles east-northeast of Cape Canaveral, FL, and said it was heading to the north at 6 mph. Maximum sustained winds were 60 mph. Joe Bastardi of WeatherBELL Analytics said the storm could be a close call. "The storm is likely to be near a major hurricane by the time it is near Hatteras as the prime conditions for intensification start this afternoon."
Bastardi points out that a modest shift in trajectory to the west could cause major disruptions during the holiday weekend for vacationers. "Like a snowball rolling down a hill, the ramp-up may be even quicker than I have it once this gets farther north...There is room for a shift of 30-50 miles northwestward, which is a small error from two to three days out in skill score land. This outlines why this is a 'nightmare' scenario...[and] this is not a minimal storm at its closest approach. A 100 mph storm moving from Cape Lookout to Cape Hatteras on the biggest holiday of the summer season would be a major event, trapping people, knocking out power; the after effects will be a real problem. On our [projected] track, it's a big pain, with hurricane gusts in that area, but the bigger resort areas to the north have less. Keep in mind, the main road on the Outer Banks floods very easily."
In overnight Globex trading August crude oil fell 32 cents to $105.02/bbl and August RBOB gasoline skidded a penny to $3.0227/gal.