The physical natural gas market for Thursday deliveries was a two-pronged affair on Wednesday, with New England points vaulting by multiple dollars and the remainder of the country on average flat to a penny higher.
The overall market rose by a nickel to average $3.70, but if some stout gains in New England were excluded, it likely would have been a loss. The Mid-Atlantic and Gulf both rose, but the Great Lakes and Midwest along with the Marcellus weakened.
Futures rambled higher with January adding 5.4 cents to $3.706 and February gained 5.5 cents to $3.736. January crude oil continued its spiral lower plummeting $2.88 to $60.94/bbl.
Next-day gas in the Northeast soared as power loads and next-day peak power rose. ISO New England reported that peak power for Wednesday of 18,360 MW was anticipated to rise to 18,700 MW Thursday and ease to 17,908 MW Friday. The New York ISO forecast that peak loads Wednesday of 21,768 MW would reach 21,881 MW Thursday and slide to 21,520 MW Friday.
IntercontinentalExchange reported that next-day peak power at the ISO New England's Massachusetts Hub rose a stout $16.02 to $74.65/MWh, and Thursday peak power at the PJM West terminal fell $3.14 to $40.91/MWh.
Gas at the Algonquin Citygates jumped $3.06 to $9.97, and gas on Iroquois Waddington added 18 cents to average $4.40. Gas on Tennessee Zone 6 200 L rose $2.67 to $9.56. Other often thinly traded New England points soared as well. Gas at Dracut added $2.34 to average $9.31.
Midwest and Great Lakes locations fell by a nickel or more as weather forecasts from Chicago west called for mild temperatures. Forecaster Wunderground.com said Chicago's Wednesday high of 36 would reach 38 Thursday and 39 by Friday. The normal high for Chicago this time of year is 37. Omaha’s 38 high on Wednesday was anticipated to reach 45 Thursday and 51 by Friday, 15 degrees above normal. Dallas’ 62 high Wednesday was seen holding Thursday and advancing to 65 Friday. The seasonal high is 56.
Gas for delivery Thursday on Alliance fell 7 cents to $3.76, and gas at the ANR Joliet Hub shed 8 cents to $3.75. Packages at the Chicago Citygates were seen at $3.64, down 2 cents, and gas on Michcon fell a nickel to $3.85. On Consumers, gas changed hands at $3.90, flat, and at Demarcation, next-day gas fell 9 cents to $3.57.
A Michigan marketer lamented that the gas bought today on Consumers at $3.93 and $3.84 was well below December index. "It wasn't pretty, and our December index was close to $5. We went in a little stronger than we should have," the marketer said.
High temperatures Wednesday and Thursday “will stay near 60 degrees due to the extensive cloud cover,” said the National Weather Service in Fort Worth, TX. “A slight warming trend will occur Friday and Saturday when strengthening southerly winds increase warm advection over the area.
“But because the generally cloudy conditions will continue into Saturday…, highs will still remain in the upper 60s and low 70s. Low temperatures will see more dramatic warming due to the cloud cover...with 50s expected area wide Thursday night through Sunday."
In the Mid-Atlantic, next-day gas was firm. Gas bound for New York City on Transco Zone 6 added 43 cents to average $4.50, and gas on Tetco M-3 rose 11 cents to $3.58.
Farther west, deliveries to Transco Leidy fell 13 cents to $2.04, and gas at Tennessee Zone 4 Marcellus was lower by 8 cents to $2.05. On Dominion South, Thursday gas shed 1 cent to $2.98, and on Millennium next-day parcels came in at $2.54, down 23 cents.
Gulf prices were generally firm. Gas on ANR SE added 2 cents to $3.57 and at the Henry Hub, gas traded at $3.61, up a penny but about a dime under the January futures. On Tennessee 500 L, next-day gas added a penny to $3.64 and deliveries to Katy were seen 2 cents higher at $3.51.
Futures traders see Thursday's release of inventory figures as potentially supportive.
"My gut feel is that we get a number that might be a little supportive of the market and we get a bounce to $3.80 before we settle into a range between $3.90 and $3.50," said a New York floor trader. "I think we'll be locked into a range for the next couple of weeks. If we don't get a winter, traders will try and lean on this market some more over the next four to six weeks. Sub $3.50 is not out of the picture yet.”
Expectations are in the range of a 40 Bcf withdrawal for Thursday's Energy Information Administration (EIA) inventory report. That would represent a sharp departure from last year's 92 Bcf pull and a five-year average of 72 Bcf. IAF Advisors calculates a 40 Bcf withdrawal and Genscape Inc. is looking for a 42 Bcf reduction. A Reuters poll of 23 traders and analysts resulted in a 45 Bcf average with a range of -23 Bcf to -61 Bcf.
Weather forecasters see little change in the outlook for persistent above-normal temperatures going forward.
"Changes are fairly minor to the outlook [Wednesday] with the southern tier shifting slightly cooler to the south of the ongoing North American ridge,” said MDA Weather Services in its Wednesday morning 11- to 15-day outlook. “This southern tier cooler look comes as a stronger ridge begins to build over the western U.S. late in the period, prompting the cooler potential over Texas and the southern tier in the second half.
"While cool air could threaten the South and East, the central part of the nation remains firmly in above to much above normal readings in a persistent +PNA (Pacific North American) pattern."
From a technical perspective, analysts see a continuing bearish landscape and see the bulls in a difficult position justifying higher prices.
"No change," said Brian LaRose, technical analyst at United ICAP. "To have any shot at a double bottom developing, bulls need to hold $3.537 and launch a rally that clears 0.500 of the decline from $4.529 (currently $4.057). The 12-month strip would need to clear $3.771.
"[There is] no case for a bottom forming otherwise. Meanwhile, see room down to $3.305 for natgas and $3.330 for the strip at minimum if the bears can crack $3.537."
On a more fundamental note, the supply-demand balance may be turning more constructive. The EIA in its latest Short-Term Energy Outlook (STEO) revised downward its March 2015 storage projection to 1,431 Bcf. That's lower by 131 Bcf (8.4%) compared with the previous STEO (see Daily GPI,Dec. 9).
"Natural gas inventories are expected to be lower than previously expected at the end of the heating season next March because of the large withdrawal of gas from storage during November due to colder-than-normal weather in most of the country," said EIA Administrator Adam Sieminski. "However, natural gas expenditures are still expected to be lower than last winter."
The Henry Hub spot price averaged $4.12/MMBtu in November, a decline of 34 cents from October. The agency projects Henry Hub prices to average $4.44/MMBtu in 2014 and $3.83/MMBtu in 2015. EIA also revised upward by a penny its price forecast for winter 2014-2015 to $3.98/MMBtu. EIA expects spot prices to remain above $4.00/MMBtu through January before declining slightly for the remainder of the winter.