August natural gas is expected to open 6 cents lower Tuesday morning at $4.17 as traders factor in improving storage outlook and a deteriorating technical environment. Overnight oil markets retreated.
Analysts see the 18-cent shellacking due to deteriorating fundamentals, specifically moderating temperatures expected to ultimately lead to a more satisfactory season-ending inventory.
"Expectations for cool patterns across the upper Midcontinent next week are conjuring up images of some continued strong EIA [Energy Information Administration] storage builds to be issued at least out to the 24th of this month," said Jim Ritterbusch in closing comments Monday. "As far as this week's data is concerned, we will be looking for a 96 Bcf injection, a number downsized only slightly from last Thursday's release. We find it difficult to envision a figure capable of reversing this sharp price plunge of the past three weeks. Violation of our expected support at the $4.29 level appeared to open the gates for [Monday's] downside extension.
"Next technical support develops at about the $4.15 level, and we will expect a test of such by mid-week. Although production was a bit stronger than we expected, industrial offtake continues to fall short of the pace that might be implied by the near-record high equities and some recent steady U.S. manufacturing indications. Consequently, the market is pricing in some additional deficit contraction that would appear to be setting up an end of October supply of around 3.5 Tcf, a stock generally viewed as adequate assuming sustainable up-trends in production through the upcoming fall and winter periods."
Power generators can expect milder conditions if near-term weather forecasts are correct. "[Tuesday's] six-10 day period forecast continues to trend cooler over MISO, PJM, and the Northeast, but is hotter over ERCOT early to-mid period in response to model timing changes with regards to a highly anomalous cold frontal passage," said forecaster WSI Corp. in a morning note to clients. "Confidence in the forecast is considered near average standards as models appear to be handling circulation across the Northern Hemisphere well, but there will likely still be some timing issues with a frontal passage.
"There are some warmer risks across the Northwest Basin in response to a highly amplified building warm ridge. Slight cooler risks are in store across portions of the East and later over ERCOT under a highly anomalous digging cold trough."
Tom Saal, vice president at INTL FC Stone, in his work with Market Profile contends that "[Monday] was a 'trend day' Market Profile structure. [It] infers an exhaustion pattern reflecting continuous selling (long liquidation by speculators). Typically, the trend day comes at the end of the move and the short-term trading strategy is the fade a lower opening today, at least to unchanged." He expects the market to test Monday's value area at $4.260 to $4.200 followed by a test of $4.373 to $4.361. "Eventually" the market is expected to test $4.387 to $4.343.
"Back year's, Cal'15, Cal'17 & Cal'19, continue to be oversold...buyers be ready," he said in a morning note to clients.
In overnight Globex trading August crude oil fell 6 cents to $103.47/bbl and August RBOB gasoline lost a penny to $2.9818/gal.