Mixed trends in the weather outlook overnight had natural gas futures easing lower in early trading Friday. The August Nymex contract was down a penny to $3.993/MMBtu as of 8:50 a.m. ET.
The American and European weather models trended in opposite directions overnight for the first week of August, with the American dataset adding to heating demand expectations and the European data shifting cooler, according to NatGasWeather.
The outlook from the American model “is back to being hot enough for the first week of August,” while the European “is seasonal and less intimidating by favoring stronger cooling into the northern U.S.,” NatGasWeather said. “This is an important difference that needs resolving, making today’s midday data important.”
National demand is still expected to “surge” next week, when “hot upper high pressure over the west-central U.S. expands to rule most of the U.S. with highs of 90s to 100s besides the Northeast,” the firm said.
Meanwhile, on Thursday the market was left to digest an Energy Information Administration (EIA) storage report that came in on the bearish side of expectations and historical norms. EIA reported an injection of 49 Bcf natural gas into storage for the week ended July 16, higher than the mid-40s Bcf print major surveys had foreshadowed. In the similar week a year earlier, EIA recorded a 38 Bcf build, while the five-year average injection is 36 Bcf.
Still, the print “did little to dissuade Henry Hub as prices rallied to end the day near a $4 handle,” analysts at Tudor, Pickering, Holt & Co. (TPH) observed, pointing to “warmer-than-average weather” that “continues to bolster the setup for balances through summer.”
Should forecasts hold, as above-normal temperatures “trickle back in” in the weeks ahead, natural gas power generation demand should “again break the 40 Bcf/d level,” according to the TPH analysts. This would compare with five-year average demand of 42 Bcf/d.
Thus far “coal generation has failed to pick up materially and gas’ share of the thermal stack has remained resilient at around 60%,” the analysts added.
As for the latest technical outlook, for the September contract a rally to $4.084, $4.181, $4.386 or potentially even $4.818 is still “on the table,” according to ICAP Technical Analysis analyst Brian LaRose.
“Bears would still need to force natural gas back below both $3.783 and $3.657 to suggest the up trend could be in jeopardy,” LaRose said.
September crude oil futures were down 24 cents to $71.67/bbl at around 8:50 a.m. ET.
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