September natural gas is expected to open 7 cents higher Tuesday morning at $3.86 as overnight weather forecasts get teased warmer. Petroleum markets gained ground.
Weather forecasts turned ever so slightly warmer overnight. In its morning six- to 10-day outlook, WSI Corp. said, "[Tuesday's] six-10 day forecast is similar to the previous issuance. It has trended slightly warmer over portions of the Ohio Valley as well as the West Coast. This is mainly a function of the one-day period shift. Forecast confidence remains about average, although better than yesterday, [and] models are in fairly decent large-scale agreement with the usual technical differences with regard to timing and magnitude of smaller-scale elements.
"A warmer risk remains in play from the lower Midwest into the Deep South. Onshore flow promotes an early period cooler risk from the BOS-DCA corridor before the risk shifts to the warmer side here late in the period as a wedge of warmth lifts up the eastern seaboard ahead of a central USA trough."
In spite of a slight tweak warmer to the weather outlooks, analysts see continued downside pressure. "[T]acking on additional price gains this week that might extend beyond the $3.95 level will prove arduous with another sizable storage build highly likely on Thursday," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday to clients. "We will be expecting a hike of 84 Bcf that would compare with a five-year average build of 48 Bcf and a 58 Bcf upswing seen a year ago. The sizable deficit contraction will go on and the shortfall against average levels should continue to shrink by about 1% per week on average, culminating in a peak supply during November of around 3.6 Tcf.
"Scheduled pipeline expansion in the eastern region will help to keep production elevated in blunting much of the impact of utilities switching away from coal and toward gas within the current environment of sub-$4 pricing. All in all, we are viewing [Monday's] lows as highly vulnerable and will expect a price decline this week to as low as $3.65 should our expected storage be realized amidst any further cold movement into the upper Midwest later this month," he said.
Risk managers don't see much near-term market movement on the horizon, and Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm, advises trading accounts and end-users to stand aside. For those with exposure to lower prices he counsels holding on to the balance of a short summer strip (April-October) initiated at $4.20. He also advises those holding a second short summer strip in place at $4.50 to continue holding that as well.
"[I]n the absence of any significant hurricane activity, the gas market is going to have a difficult time mounting any significant rally until we approach the heat season. On a trade basis, we will continue to hold our short hedge positions," DeVooght said in a weekly letter to clients.
In overnight Globex trading September crude oil gained 45 cents to $96.86/bbl and September RBOB gasoline rose 3 cents to $2.6866/gal.