April natural gas is seen opening 2 cents lower Monday morning at $2.71 as extended weather forecasts turn warmer. Overnight oil markets fell.
Overnight weather forecasts warmed. In its Monday morning 11- to 15-day forecast, WSI Corp. said the outlook is “warmer than previous forecasts across the eastern two-thirds of the nation, while the West Coast is a bit cooler due to model trends and the period shift. Period HDDs [heating degree days] are down four to around 95. Forecast confidence is average. Medium-range models are in good agreement and have been consistent with the pattern change, but confidence is hampered during times of change and based on technical model differences.
“The potential pattern shift supports a slight warmer risk across the eastern half of the nation, especially late in the period. Much of the West and Southwest have a risk to the cooler side.”
Buyers for gas-fired generation for the next couple of days across the broad PJM footprint are likely to have their hands full as a cold fronts and associated wind generation drive power loads. WSI said, “Cold high pressure will slide across the power pool today into Tuesday morning. The next frontal system and its associated warm front will spread a round of a wintry mix across the power pool during Tuesday, but the bulk of this mix should change to rain during Tuesday night into Wednesday as warmer air moves into the region.
“A few inches of snow and a glaze of ice are possible before the changeover. On the other hand, a trailing cold front may cause rain to change back to a period of wet snow during Wednesday night into Thursday morning. Eventually, this cold front will usher cold high pressure back into the power pool during the end of the week.
“Wind generation is expected to subside [Monday]. A brisk southwest to northwest wind associated with the expected frontal system will lead to a period of strong wind generation during Tuesday and Wednesday. Output may peak over 5 GW. Wind generation may relax from this peak but remain elevated during the end of the week.”
Risk managers are carefully watching $2.45 as a key decision point in their market strategy. Mike DeVooght of DEVO Capital Management last week said, “Natural gas settled lower across the board. The weekly storage number was considered negative because of a smaller than anticipated draw, [and] colder than normal temperatures was not enough to offset the negative storage number.
“On a trade basis, if the $2.45 level is broken, we will liquidate our long speculative positions.” In the absence of a market below $2.45 DeVooght recommends that both trading accounts and end-users hold a long April $4.20 call option and a short April $3.90 put. He also says to buy an April $3 call option Monday morning. Producers and physical market longs should stand aside.
In overnight Globex trading April crude oil fell 58 cents to $49.18/bbl and April RBOB gasoline shed 3 cents to $1.9447/gal.
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