The physical natural gas market proved to be a divided affair, with gas for delivery Tuesday at eastern points in the path of the Northeast blizzard posting multi-dollar gains, while those more in alignment with the Henry Hub ended up easing a few pennies.
The overall market added 33 cents to average $3.44, but factor out major northeastern metropolitan areas such as Boston, New York, and Philadelphia and the change is a more representative loss of 2 cents for the country. The futures market was on a decidedly different course as next-week's weather outlooks moderated. At the close February was off a stout 10.5 cents to $2.881 and March had dropped 11.0 cents to $2.848. March crude oil continued lower falling 44 cents to $45.15/bbl.
Prices along the Atlantic Seaboard bounded higher as the storm was forecast to pound the Northeast beginning Monday afternoon. Temperatures were expected to average about 10 degrees below normal. AccuWeather.com predicted that the Monday high in Boston of 27 would fall to 26 Tuesday before recovering slightly to 29 by Wednesday. The normal high in Boston this time of year is 38. New York City's 29 high Monday was seen easing to 28 Tuesday and falling to 26 Wednesday, 10 degrees below its seasonal norm. Philadelphia's 31 high Monday was forecast to hold Tuesday and make it to 32 Wednesday, still 9 degrees off its typical late January high.
Tuesday gas bound for New York City on Transco Zone 6 soared $3.63 to $12.38 and deliveries to Tetco M-3 added $2.82 to $6.90.
In New England gas at the Algonquin Citygates jumped $1.20 to $10.72 and deliveries to Iroquois Waddington rose $1.40 to $8.52. Gas on Tennessee Zone 6 200 L gained $1.63 to $10.29.
Marcellus points rose but not with the velocity of locations further east. Gas on Millennium added 2 cents to $1.30 and deliveries to Transco Leidy added 12 cents to $1.26. Gas on Tennessee Zone 4 Marcellus rose 20 cents to $1.27 and packages for Tuesday on Dominion South rose a dime to $2.00.
"The first blizzard of 2015 for the eastern United States will slam the New York City area and New England Monday night through Tuesday, bringing many communities to a standstill," said AccuWeather.com's Jillian MacMath. "The blizzard will unload heavy snow amid winds to 35 mph, [and] the combination of the snow and wind will lower visibility down to zero at times.
"The hardest hit areas, from New York City to Boston, could get totals greater than 2 feet. In advance of the storm Monday, travel bans and states of emergency have already been declared for numerous areas."
The New York State Department of Transportation tweeted "A state of emergency has been declared for all 5 boroughs of New York City. Avoid travel." The New York Stock Exchange, however, said that it "has vowed to remain open Monday and Tuesday despite the storm."
Power loads and prices showed a mixed impact. IntercontinentalExchange reported that peak power Tuesday at the ISO New England's Massachusetts Hub fell 73 cents to $95.69/MWh and power in eastern New York at the New York ISO's Zone G gained $5.00 to $95.00. Peak power at the PJM West terminal added $11.75 to $57.95/MWh.
New York ISO forecast that peak load Monday of 22,578 MW would reach 22,735 MW Tuesday and ease slightly to 22,590 MW Wednesday. Across the broad PJM grid peak loads Monday of 42,931 MW were expected to fall to 42,726 MW Tuesday and 42,694 MW Wednesday.
At Gulf locations next-day gas lost a few pennies. The Henry Hub skidded 3 cents to $2.93. On Tennessee 500 L gas changed hands at $2.91, down a penny and parcels on Columbia Gulf Mainline eased a penny as well to $2.85. At Katy gas came in at $2.78, down 7 cents.
Market centers outside the path of the storm also slumped. Gas on Alliance was quoted 2 cents lower at $2.87 and gas at the Chicago Citygates fell 4 cents to $2.85. Gas on Consumers was flat at $2.95 and deliveries to Michcon lost a penny to $2.95. At Demarcation Tuesday gas was seen at $2.78, down 3 cents.
Futures traders weren't buying the idea that the storm could have any significant market impact. "The market remains skeptical that the forthcoming heating demand will make a dent in storage," said Teri Viswanath, director of natural gas trading strategy at BNP Paribas.
She noted that even with "[B]lizzard warnings issued for parts of seven states, with the heaviest snowfall anticipated from eastern Pennsylvania and New Jersey to New England such a winter storm would typically elicit a flurry of natural gas futures buying, however steady production and flush storage has quelled any potential buying interest. To be sure, the most generous read, on the current storm unfolding, is that it helped stem the potential sell-off that has resulted from the milder 11-15 day weather forecast released this morning.
"Further into February, the weather models now suggest that the Northeast will hang on to some cold, but will miss the key-consuming states in the Midwest and Plains. The persistent absence of upper atmospheric blocking in the short-term weather models suggests a lack of connection to cold from Canada or more warm variations in the weather. Without a guarantee of persistent cold weather next month, the industry will probably not sufficiently pare inventories by end March- a development that is certainly not lost on the market."
Risk managers are looking for a spot to initiate short hedges. "The gas market continues to be pressured by moderate temperatures and plentiful supplies. The weakness in alternative fuels has also kept the buyers on the sidelines," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.
"[A] cooler forecast for the East over the next two weeks could give the market a boost [this] week."
From a trade perspective DeVooght said "it has been our thought that with the record short open interest by the funds, we could see a nice short covering rally (to $3.40-3.60). It will be difficult to mount any significant rally while temperatures are moderate and energies in general remain weak. We will hold our current positions and hope for an arctic blast. If the complex, especially the products rally, it could help spark the short covering rally we have been looking for. At current levels there is very little sell interest by producers, if we approach the mid to high $3 level, producer hedge interest could put a cap on further upside."
DeVooght currently advises trading accounts and end users to roll long February $4.20 calls and short February $3.90 puts to March.
Power buyers across the broad PJM footprint are likely to have their hands full the next couple of days as wind generation fluctuates and the eastern storm keeps loads high. "An Alberta Clipper-like system will continue to traverse the power pool and intensify off the East Coast during the next couple of days," said WSI Corp. in its morning forecast. "This will bring light snow and rain across the power pool today, but snow may become heavy along with a gusty northeast wind across eastern PA, DE and NJ overnight into Tuesday. Blizzard like conditions are possible along the Jersey Shore. Snowfall amounts may range as high as 6-18" across NJ and far eastern PA, but amounts will sharply decrease to 2-6" elsewhere.
"Fair, breezy and cold conditions are expected in wake of this system by Wednesday. The next frontal system will traverse the power pool during Thursday into Friday morning with a round of light snow, mix and rain. Wind generation is expected to increase later today through Tuesday. Output may top out in near 3 GW. After a lull, wind gen may increase again during Wednesday through Thursday."
In its 11- to 15-day out look WSI said "[Monday's] forecast is warmer or not as cold as the previous forecast due to the period shift and model trends. Confidence in the forecast is average at best. There is reasonably good model agreement with the general pattern, but there are plenty of technical differences.
"Given the cold forecast, the risk may be to the warmer or less cold side across the southern and eastern US as the AO [Arctic Oscillation]/NAO [North Atlantic Oscillation] are expected to be in positive phases.