August natural gas is set to open flat Friday morning at $3.95 as market bulls grope for any signs of a change in the weather landscape that might slow the present restoration of storage. Overnight oil markets were mixed.
This has truly been a weather-driven market, and if there is any hope of resurrection of the bullish case, it will need to come in the form of a late-summer heat surge capable of putting a severe dent in the current robust levels of injections. At present, that does not seem to be in the cards.
WSI Corp. said, "[Friday's] six-10 day period forecast is fairly similar to the previous forecast. Due in part to the day shift, the forecast is a bit cooler over the northern U.S, but warmer across the South and West. Forecast confidence is considered average based on reasonably good large-scale model agreement with the overall progression of the pattern. However, models continue to diverge with some of the technical and timing details across the northern U.S.
"The risk may be to the warmer side across the Midwest into the Northeast during the front half of the period. The upside risk is placed over the southern and western U.S. during the back half of the period."
Analysts see supply concerns evaporating with each weekly storage report and "as a result, storage has pulled to within 25% of five-year average levels after the deficit shrunk by an additional 42 Bcf," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday to clients.
"With this deficit evaporating in large chunks as a result of an unusually cool summer thus far, supply concerns have been alleviated and a record pace of production has been brought back into focus. Furthermore, the market may need to further discount what is apt to be another huge triple-digit increase in next week's data given this week's sharply downsized CDDs. As bearish fundamentals dominate, the chart picture has also been deteriorating as the market easily sliced through our long-expected support at the $4.05 level. From here, next support develops at 3.92, a level unlikely to be tested until next week as the market will likely spend most of tomorrow digesting today's large 4% loss with nearby futures expected to consolidate within about the lower one-third of today's range," Ritterbusch said.
"Longer term, downside possibilities now develop to about $3.75 per nearest weekly futures charts. Finally, we will note a shift to contango in the front switch, a development that is sending off additional bearish vibes. All factors considered, cool weather patterns continue to rule as this year's mild summer has provided a major offset against a cold winter. While we still expect a price rebound on first indication of a sustainable hot spell, we will also note that the short-term temperature factor will be diminishing in importance with the passing of the August contract later this month. We will caution against attempts to pick a bottom to this sharp weather influenced decline until some evidence of chart support or a shift in the weather patterns is seen."
In overnight Globex trading August crude oil fell 8 cents to $103.11/bbl and August RBOB gasoline gained fractionally to $2.8827/gal.