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September Looking to Expire Firm; 4-Cent Higher Open Seen

The expiring September natural gas contract is expected to open 4 cents higher Wednesday morning at $3.95 as traders absorb forecasts of ongoing warm temperatures into their plans. Overnight oil markets rose.

According to Tim Evans of Citi Futures Perspective, "book squaring" may have been in play Tuesday when the near-term temperature outlook "continued to trend warmer for the next two weeks, but nearby September futures eased to finish 2.6 cents lower..."

For Thursday's storage injection report Evans calculates a 78 Bcf build, the 19th week in a row of above-average injections. "[W]e think the consensus view is running close to our own 78 Bcf figure, a bearish figure compared with the 58 Bcf five-year average for the date.

"Although the temperatures for the next two weeks look warmer than a day ago, our model still points to above-average storage injections in the weeks ahead." According to his forecast, the current year-on-five-year deficit of 535 Bcf will shrink to 462 Bcf by Sept. 12.

"Between the declining year-on-five-year storage deficit that confirms the market is becoming better supplied on a seasonally-adjusted basis and the weaker September seasonal demand that may allow injections to move back above the 100 Bcf mark, we see some near-term downward potential for natural gas prices. Once that has been fully priced in, however, we continue to anticipate a seasonal rally ahead of the winter," he said in closing comments to clients Tuesday.

Evans suggests working a limit buy order on the October natural gas at $3.68 with an initial protective stop at $3.48 to limit the potential loss on the trade.

Forecasters are calling for expanding warmth. In its Wednesday morning six- to 10-day outlook, Commodity Weather Group shows increased coverage of above-normal temperatures from New England, the lower Great Lakes to Texas. "While next week is an abbreviated one owing to the holiday, the guidance trends are generally warmer for the Midwest, East and South," said Matt Rogers, president of the firm.

"Chances of showers/storms were reduced in the Deep South, putting less pressure on high temperatures, while more warm ridging is seen pulsing into the Midwest and East. Concerns about a possible cool wedge into the Northeast early next week have also abated. This allows temperatures to at least peak in the upper 80s to low 90s more frequently for the East Coast with widespread 80s to some low 90s in the Midwest, too. The West is same to a bit cooler overall [Wednesday].

"The 11-15 day continues to be a major challenge as the American and European versions are very divided between their typical warm (Euro) and cool (GFS) sides. We continue with a mixed view but keep in mind that climatology continues to drop off (cooling normals) deeper into September, too."

In overnight Globex trading October crude oil gained 31 cents to $94.17/bbl and October RBOB gasoline added a penny to $2.6120/gal.

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