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September natural gas ticks higher amid oversold conditions


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September natural gas ticks higher amid oversold conditions

NYMEX September natural gas futures turned higher in the week's opening session Monday, Aug. 7, despite a lack of fundamental support for the gains. Bargain hunting drove the day's upside action as the contract touched a $2.812/MMBtu high before settling 2.7 cents higher on the day at $2.801/MMBtu.

"The natural gas market is idling quietly just above the six-month lows reached last week, with some light-volume bargain hunting offsetting the impact of today's somewhat cooler temperature forecast," Citi Futures analyst Tim Evans said.

Weather as the main catalyst for pricing continues to suggest additional losses as revisions to the six- to 10-day and eight- to 14-day projections show below-average temperatures overtaking nearly the entire eastern two thirds of the country.

Although some above-average temperatures forecast for the eastern seaboard in the longer-range period should prop up demand in the major consuming region, any negative impact on natural gas storage rebuilding would be minimized by the overall health of supply and outlooks that call for a near record inventory by the end of injection season.

Injections of natural gas into storage facilities have trailed the five-year average injections most weeks this injection season, nearly erasing the year-on-five-year-average surplus. A 20-Bcf injection for the week to July 28 that was above the 3-Bcf withdrawal reported for the same week the previous year, but below expectations and the 44-Bcf five-year-average build, trimmed the year-on-year storage deficit to 279 Bcf and cut the five-year-average storage surplus to just 87 Bcf.

Despite the erosion of the year-on-five-year-average surplus, the total working gas supply reached 3,010 Bcf, only the third time the supply has reached above 3,000 Bcf this early in the injection season.

In 2012, working gas stocks reached 3,006 Bcf on June 15, and in 2016, working gas stocks were 3,041 Bcf by June 10. In 2012, the total working gas supply reached 3,928 Bcf on Nov. 2, while injections through Nov. 20, 2015, brought the total working gas supply to 4,009 Bcf, before weekly withdrawals began to erode the supply.

Estimates for end-of-October inventories range from Morgan Stanley analysts' projected consensus of 3.75 Tcf to as much as the 3.94 Tcf forecast by the EIA.

The day's gains against the backdrop of weak fundamentals suggests the market may be technically oversold and ripe for a short-covering rally, analysts with FX Empire said.

"Although the market is ripe for a short-covering rally, I'm overall bearish on natural gas over the near-term. I don't expect to see a meaningful rally develop until closer to the start of heating season," FX Empire analyst James Hyerczyk said.

Of course, buying could also be triggered by other weather factors, including tropical disturbances, having some potential to impact natural gas production.

The National Hurricane Center is currently monitoring Tropical Storm Franklin, located at 2 p.m. ET on Monday a couple hundred miles east of Belize, as well as an elongated area of low pressure located about 1,000 miles east of the Lesser Antilles. Neither system is expected to have any impact on natural gas production.

A mix of weather-related demand support into Tuesday drove a day of mixed trade in natural gas day-ahead markets.

Transco Zone 6 NY added about 15 cents and Tetco-M3 gained more than 20 cents to indexes in the mid-$1.80s and low $1.70s, respectively. Also moved at higher values, Chicago in the central U.S. and PG&E Gate in the Northwest each gained about 1 cent on average to indexes near $2.70 and $3.20, respectively.

Conversely, Henry Hub trade was about 1 cent lower near a $2.75 average, Waha edged nearly 5 cents lower to an index near $2.60 and SoCal Border trades tumbled more than 10 cents to an index near $3.60.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas index prices, as well as forwards and futures, visit our Commodities Pages.