James Hyerczyk
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Natural Gas

Natural gas futures are inching lower shortly before the regular session opening on Monday after failing to take out the previous session’s high. The price action suggests bullish traders weren’t too impressed by the week-end weather forecasts, but not enough to retrace Friday’s strong gains. Perhaps helping to underpin prices is the warning that a major natural gas pipeline could have restrictions in place that last the entire summer through the end of September.

At 11:48 GMT, September natural gas futures are trading $3.290, down $0.011 or -0.33%.

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Short-Term Weather Forecast

Temperatures are forecast to continue to reach the mid-90s to low 100s across the central and southern United States. Additionally, the West was also due for some “very strong regional demand” in the coming days as a dangerously hot upper ridge was setting up over the Southwest into the Plains, according to NatGasWeather. Highs were expected to reach as high as 115 degrees over less populated states. This is why national cooling degree days were only near normal to slightly above normal, Natural Gas Intelligence (NGI) reported.

“After an initial cool shot exits the East late” in the coming week, “a second is forecast to follow June 21-23 for near-normal national demand,” NatGasWeather said. Again, though, models were “favoring high pressure over the West shifting over the more important South and Southeast June 24-27 for an increase in national demand and where the pattern would likely again be hot enough to satisfy.”


TETCO Pipeline Dominates the Market

Traders are now saying that Friday’s huge rally was likely fueled by the surprise news regarding the TETCO pipeline and not necessarily the weather forecasts.

Late Thursday, TETCO released a bulletin stating a 20% pressure reduction that began this month on part of its 30-inch diameter system, could last until late in the third quarter.

In a Friday note to clients, Bespoke Weather Services said as soon as the Tetco news was issued, things went “bonkers in the natural gas market.” Based on market chatter that some of the gas may be rerouted, Bespoke questioned whether the rally was an “overreaction, especially in light of supply/demand balances not being impressive of late.”

The market was shrugging off the looseness, even before the Tetco issues first surfaced, “but it is honestly difficult to have much of an edge here, given that this issue is not clear cut yet,” according to Bespoke.

Daily Forecast

Most of Friday’s rally could be erased today if the TETCO issues winds up being less significant than what speculators currently expects. Meanwhile, although the forecasts are calling for heat later in the month, there is some risk of cooler weather for a brief period in the next few days.

We’re looking for a possible choppy trade with traders likely to be in the “buy the dip” mode.

EBW analysts see the potential for a summer rally. “Over the next 30-45 days, however, as summer weather heats up, industrial demand remains strong, exports to Mexico rise seasonally and LNG returns to full strength, tightening regional fundamentals could help lift natural gas futures,” the firm said.

It’s just going to take a little time for the bullish conditions to develop.

For a look at all of today’s economic events, check out our economic calendar.
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