September natural gas futures gained 16.1 cents to settle at $6.352 Wednesday, but short-term traders attributed much of the day’s gain to market participants growing weary of being buffeted by competing weather outlooks and an unsettled tropical picture.
“The market gets a weather forecast calling for warmer temperatures over the next 10 to 14 days and the market spikes back up, but it’s a roller coaster and there isn’t the normal liquidity with a lot of traders sitting on the sidelines. That’s why we’re seeing these wide swings,” said a New York floor trader.
Weather forecasters are calling for warmer and more resilient temperatures in the 11- to 15-day period. “From a big picture standpoint, the Midcontinent ridge seems tougher and more resilient these days on the various forecast models,” said Matt Rogers, a meteorologist with MDA EarthSat. He said instead of being easily beaten down with cool fronts from Canada (like in July), the model trends have been to weaken potential cooling influences as energy is deflected or unable to dig deep into the ridging areas.
Analysts following storage trends see competition ahead for storage space as the injection season approaches fall. “The market is nine weeks ahead of normal storage and last week’s year-on-year storage figures have now turned from a deficit to a surplus. Over the next three weeks it looks like there will be storage (availability) issues in the producing region,” said a New York broker analyst.
He added that with just a nominal hurricane season, “a $4 handle is viable. The storage economics are still there with the cash market at a 15-cent deficit to the spot futures and it’s only Aug. 1. People are running out of storage and are going to take advantage of that differential by putting as much gas in storage as possible. Any rallies are definite selling opportunities, and there is some hot weather coming, but the peak cooling degree day season is in the history books and average daily temperatures are on the decline. Above-normal temperatures are going to have a diminished bullish effect.”
He added that a bullish petroleum complex shouldn’t have much impact either. “The Btu spreads have been so favorable toward natural gas for the last five to six months, why would it create any more buying of natural gas?”
The National Hurricane Center is following three areas of interest. There is an area of low pressure east of the Windward Islands that has become better organized, and an extratropical low between Bermuda and Nova Scotia is showing a large area of cloudiness. Another large area of cloudiness and showers has developed over the northeastern Gulf of Mexico, the forecaster said.
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