Taking a break from its recent trend lower, August natural gas futures on Monday gapped higher to open and finished on a positive note. The prompt month closed out the day at $5.608, up 8.5 cents from Friday’s close.
The August contract hit a low for the move last Friday of $5.470 as temperatures in a majority of the country remained moderate and weather in the tropics continued to be calm. Natural gas storage also remains robust. The 73 Bcf injection for the week ended June 30 resulted in a new all-time end-of-June record of 2,615 Bcf. The previous end-of-June record of 2,553 Bcf was established in 1991.
“NatGas continues to suffer as storage continues to build and demand doesn’t,” said Jay Levine, a broker with enerjay LLC. With natural gas prices so weak, Levine said it makes “one wonder where in the world that elusive bottom is (and how much better the risk/reward is from where we now stand).”
Although traders looking for price-boosting temperatures early in the week are likely to be disappointed, by the end of the week, hot weather may charge into eastern energy markets and give the bulls some encouragement.
AccuWeather forecasts a large buildup of heat in the Plains that looks to move eastward later in the week. The week will start hot across the northern Rockies, but there will be some cooling moving in by midweek. Across the Plains, however, the heat will not be affected and highs from the Dakotas on south to Texas in the 90s can be expected most every day through Friday. “A few of the days may top 100 degrees over parts of the central and southern Plains. The eastern states will have near normal warmth the first few days of this week, but there are signs that the heat over the Plains will surge eastward late in the week,” said meteorologist Gerald Mohler.
In the Midwest, forecasters think the heat may last a while. “Chicago’s daytime temperatures, cooling modestly only to the lower 80s Monday and Tuesday, should climb well into the 80s midweek as warmer and more humid air returns,” says Richard Koeneman, a meteorologist at WGNTV.com. He predicts the heat and humidity arriving with 90s on Friday and lower or middle 90s over the weekend might be only the beginning. “The jury is still out, but computer models now suggest a lengthy period of hot weather, interrupted only by weak and modest cooling, lies ahead.”
Looking a little further out, MDA Federal’s EarthSat Energy Weather group said long-term focus is shifting toward the fall tropical season and the upcoming heating season. “The big issue for the fall and winter will be the potential evolution of El Nino,” said Matt Rogers, deputy director of EarthSat Energy Weather. “Right now, the Tropical Pacific appears to be struggling to break into the weak El Nino range. This means we should still see an active hurricane season and perhaps some cold opportunities this winter in the East.” He noted that for the upcoming heating season, the current “big picture thinking” favors closer to seasonal East Coast and West Coast conditions with warmer weather for the middle third of the nation.
Some analysts are looking beyond weather and taking a more complete approach. On Friday prior to the release of the moderately bearish storage report showing a 73 Bcf injection, Phil Flynn of Alaron suggested that broader macroeconomic factors may be more important to energy prices than short-term concerns. “With mild temperatures across the U.S. and no tropical storms in sight, the fate of the energy complex more than likely is going to be tied to the larger macro picture than it is by what most likely will be another bearish injection number,” he posited. Traders on Friday, however, weren’t taking such a broad outlook as August futures fell 14.1 cents to finish the week at $5.523.
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