October natural gas is expected to open 9 cents lower Tuesday morning at $3.98 as traders see weather forecasts becoming less of a market driver and focus their attention on shoulder season storage refill. Tropical Storm Dolly has surfaced in the southern Gulf of Mexico. Overnight oil markets careened lower.
Top traders see weather-driven advances having run out of steam. "We are maintaining a trading theme that the late-summer temperature-induced price advance has virtually run its course and that the next major price swing of more than 8% will be developing to the down side," said Jim Ritterbusch of Ritterbusch and Associates in a weekend note to clients.
"While the market may still need to price in a further sequential decline in storage fill as a result of last week’s elevated CDDs, focus will also be increasingly placed on the upcoming shoulder period when the dynamic of a deficit contraction is apt to be sustained. Strong year-over-year production gains, in our opinion, will soon be approaching 5.5%, and this factor remains as the ‘elephant in the room’ in keeping supply builds strong well into the fall period.
"Coal-to-gas switching could be curtailed slightly by the recent up-move to above the $4 mark. But it also appears that coal transportation issues and limited flexibility have restricted the impact of this factor lately. In other words, gas-to-coal displacement didn’t look like a major element last month in bolstering electric generation consumption."
Ritterbusch recommends a bearish trading posture with stop-loss protection at $4.20 and should the market close below $3.93, additional sales are recommended while lowering the stop to $4.10.
Natgasweather.com sees little in the way of market impacts from upcoming weather. In its Tuesday morning outlook it said, "The weather pattern is also playing out as we expected for the first 10 days of September. A weather system tracking through the north-central U.S. today will sweep through the Northeast after a few cities are briefly able to warm along the coast to near 90 degrees F Tuesday. This will bring comfortable temperatures to much of the northern U.S. midweek before another brief surge of warmer air races ahead and into the Midwest and eastern U.S. Sept. 3-5.”
Further out, the firm sees yet another Canadian weather system tracking] across all of the northern U.S. as the first week of September ends and the second week begins. “This will bring another round of very comfortable temperatures as highs only in the upper 60s and 70s should be expected for the northern U.S. with upper 80s to mid-90s for Texas and the Southeast," it said.
In its 8 am. EDT Tuesday report, the National Hurricane Center said Tropical Storm Dolly was moving to the west-northwest at 13 mph and had sustained winds of 50 mph. The storm was about 145 miles east of the Mexican coast in the southern Gulf of Mexico. Forecasts predicted a Mexico landfall.
In overnight Globex trading October crude oil fell $1.10 to $94.86/bbl and October RBOB gasoline tumbled 4 cents to $2.5821/gal.