The expiring October natural gas futures contract is expected to open 3 cents lower Friday morning at $3.94, with traders squaring books as it goes off the board. Weather forecasts continue to be unsupportive, and technical thresholds remain intact. Overnight oil markets were mixed.
The ability of the market to integrate a hefty storage build into pricing essentially without missing a beat may be sending latent bullish signals. Traders wonder whether even though the market fell initially when the storage figures were released Thursday morning, it still was able to absorb a near-100 Bcf build rather easily.
"Most guys were looking in the 98 Bcf range, so it came in pretty much as expected," said a New York floor trader. "To get this market moving one way or another there is going to have to be a big weather-related event. If you look at these numbers, these are big for this time of year, but the market did not react, so that has to tell you something."
Others see the market's non-reaction to the bearish number as setting up an active expiration Friday. "The ability of this market to absorb a seemingly bearish storage report would appear to set the stage for an active trade tomorrow with the October contract going off the board. While some of [Thursday's] strength may have related to option expires, we feel that this is simply a market which much of the bearish news has been priced in and fresh selling tends to dry up at levels below $3.85 in nearby futures," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday to clients.
"While our downside target to the $3.75 level remains intact in the November contract, we feel that today's lows will need to be violated early next week if any downside momentum is to be maintained. The fundamentals still look bearish with the temperature views still mild into the second week of October and with the dynamic of significant deficit contraction still intact. But we are also conceding to a choppy/sideways trading affair that could extend well into next month.
"With values currently trading near the middle of our expected trading range, we will caution against fresh entry into either side of the market. [Thursday's] 97 Bcf storage injection exceeded average street ideas by 5 Bcf and shrunk the deficit against five-year averages to 12.5% in maintaining our expectations for about a 1% contraction in the deficit per the week through the remainder of the injection cycle."
Power buyers looking ahead to the weekend across the vast PJM footprint will likely have moderating loads and increased renewables generation. WSI Corp. in its morning outlook said, "high pressure will promote fair and warm conditions across the power pool today through the weekend. High pressure is expected to weaken early next week. This may allow a storm system over the southern U.S. to move northward, while a cold front may sag southward. This will lead to increasing cloud cover, and increasing chance of light rain and a downward trend with temperatures.
"High pressure will generally support light and variable wind generation during the forecast period, though a couple of spikes in generation are possible during the next couple of nights. Output may top out in excess of 1 GW. Plentiful sunshine will support solar generation prospects through the weekend," WSI predicted.
In overnight Globex trading November crude oil rose 56 cents to $93.09/bbl and November RBOB gasoline fell fractionally to $2.5375/gal.