There was little movement overall in next-day physical natural gas traded Wednesday for Thursday delivery. On balance, the market was down a penny at $2.34, but the Northeast Region slid a dime thanks to a nearly dollar decline at Algonquin Citygate. Points across the rest of the country were either unchanged, or up a couple of pennies to a nickel.
Weather patterns in New England call for temperatures above normal, and next-day power weakened as well. Futures prices were not immune to a $3.00 jump in oil prices, with May gaining 8 cents to $2.610, while June was higher by 7.7 cents to $2.649. May crude oil soared $3.10 on a seemingly supportive inventory report to settle at $56.39/bbl.
Thursday's natural gas inventory report by the Energy Information Administration (EIA) is expected to show a relatively stout build for this time of year, adding to the year-on-year surplus and lowering the year-on-five-year deficit. A year ago 22 Bcf was injected and the five-year pace is for a 35 Bcf build. If estimates are correct, those numbers will be left in the dust by Thursday's numbers.
IAF Advisors in Houston predicts a 62 Bcf increase, and analysts at ICAP Energy calculate a 60 Bcf gain. A Reuters survey of 24 traders and analysts revealed a 53 Bcf injection with a range of 37 to 66 Bcf.
Analysts see current bargain-basement natural gas prices as an incentive to switch from coal in the near term. Wednesday’s “price movement seems driven by investors making position adjustment for [the] EIA report, with some short covering," said NatgasWeather.com's Andrea Paltrinieri. "Moreover, these prices could spur power burn demand and a switch from coal eventually.”
On Tuesday (see Daily GPI, April 14), “the EIA in the Long Term Outlook provided some support to prices, seeing more industrial demand related to gas, and starting to see a slight production reduction from May onward. Having saying that, all eyes are on [Thursday] numbers, with estimates around plus-55 to plus-58 Bcf right now. I'm at plus-63 Bcf injection, on the bearish side of the market, and NatGasWeather.com is at plus-57 Bcf."
On paper, industry estimates are already in the market, but experience has often proven otherwise. "We are hearing anywhere from the 40-60 Bcf estimates," said a New York floor trader. "Technically the market continues to look sad. You would need a really big rally to change sentiment. I don't know that you are going to see that much on the downside as we have been beaten down so much. I think there is much more interest building from down below and the risk is for higher prices. I don't see us going down much more going into the summer season."
Others concur with the upside potential, and with stocks currently at 1,476 Bcf or 173 Bcf below the five-year norm, there is plenty of room to store gas.
"With inventories still below the five-year average level, we continue to note that natural gas is not overstocked the way the petroleum market is, and so it may not take that much of a fundamental shift to send prices higher again, but for now the downside still looks open," said Tim Evans of Citi Futures Perspective in comments Tuesday to clients.
Evans calculates a 42 Bcf build for the report, and he said he sees above-average injections for the next several weeks, taking the five-year deficit down to 80 Bcf by May 1. This is "confirming that the market is becoming better supplied on a seasonally adjusted basis, which most often translates into declining prices over the intermediate term."
Cash prices moved the most in New England on Wednesday as temperatures were forecast above normal. Wunderground.com forecast that Wednesday's high of 66 in Boston would drop to 59 Thursday and reach 61 Friday. The normal mid-April high in Boston is 55. New Haven, CT was expected to see a high of 69 fall to 57 Thursday before recovering to 60 on Friday. The seasonal high in New Haven is 56.
Gas for delivery Thursday at the Algonquin Citygate plunged 86 cents to $2.60, and deliveries to Iroquois Waddington added 3 cents to $2.82. Gas on Tennessee Zone 6 200 L fell 49 cents to $2.48.
In the Midwest, price movements were more subdued. Parcels on Alliance for Thursday rose 6 cents to $2.53, and gas at the Chicago Citygate gained 2 cents to $2.54. At Demarcation, next-day deliveries came in up a penny at $2.41, and on Panhandle Eastern gas was quoted at $2.28, up a penny.
In the West, CIG declared a force majeure Tuesday because of a failure at its Cheyenne Jumper Compressor Unit, according to industry consultant Genscape Inc.
"The compressor, located just south of the Wyoming border in Weld County, CO, will have its capacity reduced from 421 MMcf/d to 251 MMcf/d until further notice. Flows through Cheyenne on Segment 182 have averaged 410 MMcf/d for the previous seven days as well as April-to-date, resulting in a reduction of about 38%."
Next-day gas on CIG Mainline was flat at $2.24.
Forecasters are calling for cooler temperatures east of the Continental Divide later in the month. MDA Weather Services in its 11-15 day outlook said, "Computer models bring a stronger ridge to the Arctic Circle versus previous expectations, providing additional cool air support. The forecast trends cooler as a result and brings below-normal temperatures to many areas from the Plains to the East.
"The active nature of the pattern, however, limits confidence in the sustainability and depth of the cool air within this period; however, model guidance from GFS and ECMWF [computer models] generally provide colder risks in the eastern half. The West remains variable, with temperatures that are near and slightly above normal overall."