August natural gas is expected to open 3 cents lower Monday morning at $4.12 as traders prepare for an onslaught of cooler temperatures that are expected to impact major eastern and Midwest population centers. Overnight oil markets were mixed.
Power generation requirements for the near term are likely to take a big hit this week and impact storage for next week. Forecaster Commodity Weather Group sees a large ridge of below-normal temperatures extending from New York to New Mexico, and North Dakota to Georgia. Following that, however, temperatures are still expected to be moderate.
"After this week's impressive cool push into the Midcontinent, we track a same-to-slower moderation in temperatures for the Midwest, East and South for the six-10 day range. Temperatures find their way back to above-normal levels for the Midwest by days nine-10 (Tuesday-Wednesday next week), while reaching the East Coast toward the middle of next week," said President Matt Rodgers in the firms morning forecast.
"The warming is expected to be transient again as another cool push seems to be getting stronger on the more recent guidance for the eastern third of the U.S. for mid to late 11-15 day as the main heat ridge retracts to the western states (especially interior). Other sources for national demand loss today include cooler-than-expected short-range conditions for the West Coast states, slightly reduced heat potential for Texas before the cool front, and storm-induced weakness on the East Coast ahead of this week's cool front."
Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm, advises trading accounts and end-users to stand aside the futures markets for now. Producers and those with exposure to lower prices are advised to hold short the balance of a short summer strip initiated earlier at $4.20 to $4.30. He also recommends to stay short a second summer strip initiated at $4.50. The summer strip settled Friday at $4.142.
"Gas has been under pressure the past couple weeks, primarily because of higher than anticipated storage injections and the lack of any significant cooling demand," DeVooght said. "Many that have become bullish on gas prices have done so because they anticipate ending the summer at historically low storage levels. That may very well be the case if we don't have a cool summer, but if we do, we will start to see the deficit continue to tighten, which will take wind out of the short-term bull sails.
"To have a substantial bull market, we feel we need to see an uptick in demand to offset the steady production increase we are experiencing in the U.S. We could see short-term weather-related spikes, but we still feel selling rallies above $4.50 for producers is an attractive forward selling level," DeVooght said.
Analysts see the market as all about short-term weather. "For the time being, prices are being chiefly guided by the near-term weather forecasts as well as supply fundamentals," said WeatherBELL Analytics analyst Alan Lammey in a morning note to clients. "At this juncture, it's not out of the question that sellers may attempt to test of the major $4 psychological support level in the short term, particularly if spot prices across a large area of the nation press lower as a result of the lackluster summer demand.
"If the gas complex was astonished at the notable selling action in the natural gas futures and spot market last week, they may be more surprised this week as unusually cool temperatures encompass a large area of the U.S. focused in the center of the country and extending to parts of the East/Northeast. A majority of this price weakness is happening at a time when summer demand would traditionally be creating a lift to natural gas consumption via heightened air conditioning loads. The brew of plentiful gas production being produced in the Marcellus area is colliding with the considerably lower weather demand this week, thus injecting some downside action in natural gas prices."
In overnight Globex trading August crude oil fell 13 cents to $100.70/bbl and August RBOB gasoline gained a penny and a half to $2.9230/gal.