October natural gas is expected to open 5 cents higher Monday morning at $3.91 as traders balance a steady technical picture with near-term risk for lower prices. Overnight oil markets fell.
For the most part, shoulder season weather is out of the picture in terms of being a market driver, and most likely attention will turn to hefty production and storage. "Warmer changes in Texas in the coming days (especially Dallas) combined with warmer shifts this weekend on the East Coast along with slightly cooler midweek conditions in the Midwest contribute to demand gains compared to Friday's outlook when looking at both heating and cooling degree days together," said Matt Rogers, president of Commodity Weather Group in a Monday morning report.
"This time of year finds very low demand nationally, so the gain in actual levels may be smaller than the literal number change of degree days (given the lack of effectiveness due to shorter duration at peak periods). Otherwise, the American guidance still offers cooler risks to our outlook for the Midwest and East in the 11-15 day while the European and Canadian are mixed to normal. The West is the area with highest confidence on warmest anomalies. Meanwhile, outside of Hurricane Edouard turning back out to sea, the Atlantic tropics are very quiet currently with no threats seen developing this week."
Risk managers see an environment tilted to the downside. "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 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 recommends that trading accounts and end-users stand aside, and for those market longs holding on to what's left of a short summer strip, he advises staying short the initial position at $4.20 to $4.30 and also holding short a second summer strip at $4.50.
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 $3.954 to 3.786 before moving on and "maybe" testing $4.568 to 4.482.
In overnight Globex trading October crude oil fell 82 cents to $91.45/bbl and October RBOB gasoline skidded a penny and a half to $2.5044/gal.