October natural gas is set to open 2 cents higher Thursday morning at $4.02 as traders expect a government inventory report to continue showing well above normal additions to storage. Overnight oil markets firmed.
The market has been confined to a trading range for the last several weeks, and traders will be looking to see if the 10:30 a.m. EDT release of storage data by the Energy Information Administration will prompt a move out of the $3.75-4.00 zone. The Wednesday expiration of the September contract gave traders little insight, but that could all change once the number hits the market.
Expectations are for a build in the 78 Bcf area, well above last year's 65 Bcf increase and the five-year pace of 58 Bcf. Houston-based IAF Advisors calculates an 80 Bcf increase, and a Reuters poll of 27 traders and analysts revealed a 78 Bcf average with a range of 72-83 Bcf. Bentek Energy’s flow model sees a somewhat smaller 76 Bcf increase and attributes the decline from last week’s 88 Bcf entirely to increased power generation demand.
“Total U.S. demand increased 1.3 Bcf/d from the previous week, with power burn demand accounting for the entirety of the uptick. Burn rose to 28.5 Bcf/d on the week, the highest weekly power burn demand of the year,” the company said in a report.
This week's consumption of electricity could also lead to a relatively thin build next week as well. The National Weather Service (NWS) for the week ended Aug. 30 predicts well above normal cooling requirements for major population centers. NWS calculates New England will endure 46 cooling degree days (CDD), or 24 more than normal, and the Mid-Atlantic will see 57 CDD, or 23 more than its seasonal tally. The greater Midwest from Ohio to Wisconsin should swelter under 68 CDD, or 34 more than its norm.
Forecaster NatgasWeather.com is looking for temperature patterns to prompt relatively lean storage builds for the next couple of weeks followed by plump increases going into the shoulder season. "The weather system moving through the central U.S. today will bring noticeable cooling and easing of demand, while the weather system departing the Northeast will also provide comfortable temperatures with highs in the 70s to lower 80s.
"The warm-up coming after this weather system departs is a bit tricky due to inconsistencies in weather models as they try to figure out exactly where cooler Canadian air will advance into the U.S. around Sept. 6-7th. There will be a noticeable blast of cooler temperatures over a big chunk of the U.S., but there is still uncertainty on how fast it will push into the eastern U.S.
"Next week’s build will also likely be in the 70 Bcf range and very well could be the last one below 80 Bcf for the remainder of the year. As long as there remains strong potential for cooler Canadian air to push into the northern U.S. for the second week of September, we expect the markets to have limited upside potential as the return of 100+ Bcf builds will be looming."
In overnight Globex trading October crude oil added 14 cents to $94.02 /bbl and October RBOB gasoline rose a penny to $2.6008/gal.