August natural gas is hovering unchanged at $4.170 prior to the market's open as bulls factor in a near-term constructive weather outlook, but bears look for a continued reduction in the storage deficit once government figures are reported. Overnight oil markets were mixed.
Summer's power generation gas demand has finally caught up with gas injections, and industry pundits are calling for a build in the neighborhood of 90 Bcf, still well ahead of historical averages once the Energy Information Administration releases inventory data at 10:30 a.m. EDT. Last year, 80 Bcf was injected and the five-year average increase stands at 72 Bcf. An injection of 90 Bcf would indicate an incremental surplus of about 1 Bcf/d, according to studies.
Analysts at Tudor, Pickering, Holt & Co. see the "Expected injection of 90 Bcf closer to norms than we have seen recently on an absolute basis, but on hotter than normal weather, so implied oversupply continues. Cooling degree days for the week of 77; +7 CDDs vs week's historic norms and +14 vs previous week.
"With the 4th falling the day after reporting period, this week's calcs are more challenging than normal but sequential math suggests about 80 Bcf on a week/week uptick in air conditioning-driven electric demand…a higher 90 Bcf print would suggest another 1 Bcf/d of incremental oversupply."
IAF Advisors is looking for an increase of 90 Bcf, as is Stephen Smith Energy Associates. A Reuters poll of 22 industry traders and analysts revealed a sample mean of 92 Bcf with a range of 88-101 Bcf.
Bentek Energy's flow model forecasts a build of 88 Bcf, the first sub-100 Bcf build since early May. Bentek said it "has taken a small holiday effect into account with this forecast, although the holiday weekend will most likely impact next week's number to a greater degree. Total demand in the U.S. showed little effect from any holiday weekend impact, with an uptick of 2.3 Bcf/d in power burn demand from the previous week as total population weighted cooling degree days rose from 67 to 81 week-over-week."
In the near term, the weather outlook is supportive of a strong power burn. Natgasweather.com in its morning report said, "A Canadian weather system with showers, thunderstorms and cooler temperatures will impact the Midwest and Northeast over the next few days. Over the southern and western U.S., high pressure continues to bring hot temperatures with highs warming into the 90s and 100s.
"After the weather system departs out of the Northeast, temperatures will again surge into the 80s and 90s over much of the northern U.S. as the ridge returns this weekend. Texas, the southern Plains, and the Southeast will also see temperatures warm several degrees above normal as upper 90s and 100s become widespread. The return of northern U.S. heat will be short lived as an even more impressive Canadian weather system weakens the ridge and brings below normal temperatures to the U.S. next week."
In overnight Globex trading August crude oil eased 21 cents to $102.08/bbl and August RBOB gasoline rose fractionally to $2.9395/gal.