Daily GPI / Markets

Bulls Circling Wagons as Plump Supplies Remain Fully In Play

May natural gas is expected to open 5 cents lower Friday morning at $1.92 as supply concerns dwarf any issues of reduced production, summer warmth and other factors working to rebalance the market. Overnight oil markets plunged ahead of a weekend OPEC meeting.

Gas buyers tasked with securing weekend supplies for power generation across the MISO footprint may have an easy time of it as moderating temperatures and strong wind generation are forecast to affect the area. WSI Corp. in its Friday morning six- to 10-day outlook said, "A south-southeast flow around the western periphery of high pressure will support a warming trend during the next couple of days. Highs temps will top out in the upper 50s, 60s and 70s. However, a wave of low pressure will lead to clouds and periods of rain across MISO South (Entergy).

"Eventually, a frontal boundary and a slow-moving upper-level system over the Plains will introduce a chance of showers during the end of the weekend into early next week, which will scale back some of the warmth. A fluctuating southerly wind will support strong wind generation during the next couple of days. Output will peak 8-10 GW, and wind gen will likely subside Sunday into early next week."

Looking beyond the weekend, WSI said, "the six-10 day period forecast features widespread above to much above average anomalies, except for portions of New England and South Texas. [Friday's] forecast is generally warmer than yesterday's forecast over the eastern two-thirds. CONUS and GWHDDs are down 4.1 and are forecast to be 21.4 for the period. PWCDDs are up to 11."

That warming trend and beyond "will be translating to some normalized injections beyond next week's release that will maintain a huge supply cushion at this early stage of the injection cycle," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients. "In addition to some additional production decline, this market may require some supply disruptions or an early start to a hot summer if storage overcrowding is to be precluded. We agree with the EIA's projected end-of-season supply in excess of 4.1 Bcf by the beginning of November, a record high. With such a stock capable of meeting even the strongest of winter requirements, buying activity going forward will continue to be quelled until summer weather forecasts and hurricane activity acquires some clarity."

Much of the oversupply is located near the Henry Hub, bringing additional price pressure. "Meanwhile, gas supplies in the futures-related South Central region increased a further 17 Bcf last week in contrast to declining trends in most other regions. South Central supply currently accounts for an unusually large 45% of total U.S. storage. This represents a potential bearish consideration to the physical market, in our view, that could force renewed significant expansion in the spread carrying charges, especially if the speculative community charges back into the short side of the liquid nearby futures or ETFs such as DGAZ."

In overnight Globex trading May crude oil dropped $1.07 to $40.43/bbl and May RBOB gasoline fell 5 cents to $1.4581/gal.

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