October natural gas is expected to open 3 cents higher Monday morning at $3.82 as traders ponder a cool thrust to the nation's interior along with continued technical weakness. Overnight oil markets fell.
WeatherBELL Analytics in its Monday morning 20-day outlook expects significant cold to hit the middle of the country. "The strong push of cold air right into the nation's midsection reaches its coldest point in days three through eight. However, this weakens as it moves eastward, though it does end the warm regime," said meteorologist Joe Bastardi.
"The ECMWF [European Model] surface map allows for easterly flow for much of the week in the coastal Northeast, but the low Friday is indeed looking like it will go up into the Great Lakes and a front has to press after it. No question, this is a first-class cool outbreak, but again, the strongest push relative to averages is in the Plains."
For the next two weeks WeatherBELL sees an increase nationally in heating requirements. WeatherBELL is looking for 34.1 heating degree days (HDD) compared to last year's 27.8 HDD and a 30-year average of 28.6 HDD. Nationally, cooling requirements are seen at 79.5 cooling degree days (CDD), significantly less than last year's 112.9 CDD and a 30-year average of 96.3 CDD
Risk managers see continued weakness and advise downside protection. "As we wrap up the summer, there is a very good chance that the gas market will continue to probe the year's lows. If we fail to hold the $3.75-3.80 level, technical selling could push the gas market into the mid $3 level," said Mike DeVooght, president of DEVO Capital, a Colorado trading and risk management firm in a weekly note to clients.
"A cool summer, high production and mediocre demand continue to keep the gas market on the defensive. To have a substantial bull market, we feel we need to see an uptick in demand to offset the steady production increase we are experiencing in the U.S. We could see short-term weather-related spikes, but we still feel selling rallies above $4.50 for producers is an attractive forward selling level."
DeVooght currently advises trading accounts and end-users to stand aside, and producers and those with exposure to lower prices should hold what's left of a short summer strip initially established at $4.20-4.30 and also the remainder of a second short summer strip initiated at $4.50. The summer strip (October) settled at $3.793 Friday.
Tom Saal, vice president at INTL FC Stone, in his work with Market Profile expects the market to test last week's value area at $3.911 to $3.781.
In overnight Globex trading October crude oil fell 88 cents to $92.41/bbl and October RBOB gasoline lost 2 cents to $2.5616/gal.