November natural gas is expected to open 12 cents lower Monday morning at $3.92 as forecasts calling for a cool air incursion suddenly look less intense. Overnight oil markets rose.
MDA Weather Services moderated its six- to 10-day outlook. In a Monday morning report MDA said, "A much less cool outlook is shown today as cold air support weakens and a more variable pattern emerges. Though lingering high-latitude ridging remains in place from the Canadian Arctic toward Greenland (-NAO) [North Atlantic Oscillation], supporting a cooler outlook than what the models show, the Pacific pattern is set to be much less supportive of cool air while also supporting a more variable pattern.
"One cool shot early in the period comes with cooler concerns from the Midwest into the Great Lakes as an upper-level trough digs in over the Midcontinent, though sustainability of the cool air remains a question."
Risk managers favor the upside. "Funds continue to carry a fairly large short position in natural gas, which could set the natural gas market up or a short-covering rally, similar to the one we saw last winter," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "As we approach the heating season, there will be a reluctance to pressure the market on the short side. We will be monitoring the winter contracts for an opportunity to initiate hedges for the winter months. We will be looking for a rally to the $4.50-5.00 level to do so. For speculators and long hedgers we would purchase the winter $4.20 calls and sell the $3.80-3.90 puts."
Gas for power generation over the broad Midwest Independent System Operator (MISO) footprint may not be quite so much in demand as forecasters call for favorable wind generation prospects. In its Monday morning outlook, WSI Corp. said, "The mean location of a strong, cutoff low-pressure system over southern Canada will keep conditions generally dry and cool, yet windy over much the region through mid-week. Conditions look generally dry through much of the period, with some increased risk for scattered showers on Thursday as a weak short-wave swiftly sweeps across the region.
"Northwesterly flow will likely increase in speed later this afternoon [Monday], providing a favorable window for wind generation. Wind generation is anticipated to remain favorable over the next few days as northwesterly flow dominates. High pressure is anticipated to build back in later in the week, reducing wind prospects."
In overnight Globex trading November crude oil gained 30 cents to $90.04/bbl and November RBOB gasoline added a penny to $2.3926/gal.