October natural gas is set to open a penny higher Tuesday morning at $3.89 as traders balance near term forecasts not quite as cool as before, and study a somewhat changed technical picture. Overnight oil markets rose.
Monday's 8-cent advance pumped some life into a dying natural gas bull, but it's not off life support just yet. "Constructive day for the bulls. However, it is going to take a lot more to convince us that the bullish model has been revived," said Brian LaRose, analyst at United ICAP. "For starters, we would like to see the new A=C objectives from $3.724 [July 29] exceeded. .618 a=c targets $3.944-3.984. [A full] a=c targets $4.057-4.122. 1.618 a=c targets $4.240-4345. Bulls have no case for gaining the upper hand unless these levels can be cleared," he said in closing comments to clients.
Fundamental traders don't see any significant change in the trading landscape and recommend short positions. "This market put in a surprising show of strength [Monday] after posting some fresh three weeks lows in the overnight session. Since we saw no significant change in the short term temperature views, the market may be responding to some tropical wave formation off the west coast of Africa," said Jim Ritterbusch of Ritterbusch and Associates in closing comments.
"However, chances of cyclone formation appeared limited. The more likely impetus behind today’s gains was a burst of short covering when the market was unable to take out the mid-August lows. Regardless, we still see these lows as vulnerable by mid-week when the longs will likely be looking to exit the market ahead of another storage report that should bring another strong injection in comparison to the builds of around 60-64 Bcf seen within the 5 year averages and a year ago. The dynamic of deficit contraction in large chucks will remain intact and short of a major disruption to production this fall, supplies should continue to increase at a much above normal pace. We are maintaining a bearish stance in quest of $3.65 after having suggested additions to short holdings above the $3.85 mark. We are still advising stop protection at the $3.92 level on a close only basis."
Weather forecasts warmed a bit overnight. WSI Corp. in its morning outlook said, "The 6-10 day period is not as cool as the previous forecast across the eastern two thirds of the nation. This is due in part to the period shift, but also model trends as well. Confidence in the forecast is considered average based on reasonably good model agreement. As usual, there are technical and timing issues to contend with, especially late in the period."
WSI admitted that "Despite the trend in the forecast, there is a slight downside risk across the eastern US, focused into the Northeast. The western U.S. may run a little warmer."
In overnight Globex trading October crude oil gained $1.02 to $93.68/bbl. and October RBOB gasoline rose fractionally to $2.5625/gal.