August natural gas is set to open a penny higher Wednesday morning at $4.11 as traders sense that fuel-switching may ultimately provide market support. Weather forecasts remain tempered. Overnight oil markets rose.
Analysts see natural gas prices as ultimately supported by economic incentives if not weather. "While there is growing model agreement that a brief spike of heat will occur in the Midwest and Northeast next week (with a warm-up hitting the Midwest on Tuesday and the eastern I-95 corridor by Thursday), there is also agreement that temperatures in the eastern half of the nation will then cool-off thereafter," said Teri Viswanath, director of commodity strategy for natural gas at BNP Paribas.
"With roughly a month left of the 'peak' cooling season, we anticipate that opportunities for an extended rally will now be limited as the market focuses on heavier than anticipated weekly [storage] injections. Thereafter, we are growing increasingly constructive as the regional fuel-switching story becomes more compelling."
If Viswanath's analysis is correct, storage builds may taper. "Marcellus supply growth, coupled with known transportation constraints, is responsible for increasing price weakness in the Appalachian region this summer," she said in a note. "The common range for Dominion, South Point prices bottomed out last Friday, with physical trades ranging from $1.98 to $2.25/MMBtu. The absence of new takeaway pipeline projects for the balance of the injection season should result in increasingly favorable economics for coal-to-gas fuel-switching. Indeed, the only means for balancing this region, as the summer heat begins to fade, is to incentivise an increase in electric power demand. This development, in our opinion, should enable a slightly lighter restocking effort in the second half of the injection season."
Joe Bastardi, meteorologist at WeatherBELL Analytics, sees fluctuating weather patterns with no clear trends. In his Wednesday morning 20-day forecast he said, "Confidence is high this morning that the ebb and flow continues. The biggest problem will be the trough coming through the southern Plains on the tail of the major cold outbreak as it may get 'stuck' over the Southeast in the six-10 day, leading to cool, wet weather from East Texas to the East Coast (south of the Mason-Dixon line), while warmth surges back across the North. The warmth will get beaten back and reversed in the 11-20 day period."
Bottom line, look for the next 15 days to be cool. WeatherBELL predicts a national accumulation of 154.5 cooling degree days (CDD), well behind last year's 172.2 and a 30-year average of 175.5 CDD.
Analysts following Elliott Wave and retracement analysis see a number of calculations pointing to a seasonal cycle low. "$3.937 represents 1.618 of 'a'='c' off the $4.891 August high, [and] $3.656-3.487 represents 0.618 of [the] $1.902 to $6.493 [major advance]. [We] see these objectives as our primary candidates for a seasonal cycle low," said Brian LaRose, an analyst at United ICAP. "To suggest an earlier then usual low has the potential to develop, bulls need to push natgas back above $4.287," he said in closing comments Tuesday to clients.
In overnight Globex trading August crude oil added 70 cents to $100.66/bbl and August RBOB gasoline gained one cent to $2.9120/gal.