Natural gas forward basis markets were mixed last week, with most points shifting only a few cents despite some significant traction in Nymex futures.
The Nymex May contract jumped 17.3 cents from Monday to Thursday even as the U.S. Energy Information Administration once again reported a larger-than-expected 63 Bcf build to storage inventories.
At least one analyst said the rally in futures was likely just a stall in the inevitable sell-off ahead as the market would need to keep prices low in order to avoid a record build in storage stocks.
And while basis markets typically look to futures for direction, that wasn’t the case this week as the majority of market hubs barely moved.
One exception, however, was Transco zone 6-New York, where May basis climbed 14.3 cents between Monday and Thursday to reach minus 19 cents/MMBtu, according to NGI’s Forward Look.
The bulk of that increase occurred early in the week, when one of Exelon’s Nine Mile Point nuclear units shut down during the weekend and remained offline for a couple of days.
A Northeast trader said the nuclear outage, as well as plenty of short-covering in the market, was largely behind the rally in New York.
Also providing support to New York prices was colder weather on tap for next week.
A weather system is expected to move into the north-central U.S. early next week and will have numerous reinforcing cool blasts sweep across the northern U.S. through the rest of the month, according to forecasters with NatGasWeather.
The system will result in temperatures dropping several degrees below normal and driving moderate late season demand for heating over the Midwest and into the northeastern U.S. as lows drop into the upper 20s and 30s, the forecasters said.
Meanwhile, Genscape is projecting demand to rebound from this week’s lull as heating demand once again kicks in.
“New York demand has been resting between 2.62 and 2.87 Bcf/d, quite a difference from last week, where daily average temperatures ranged from 40-50 degrees,” said Genscape’s Erik Fabry, research analyst for natural gas. “We saw New York state demand boom over 4 Bcf/d twice last week, Wednesday and Thursday, when average temperatures were just 40 and 42 degrees, respectively.
Fabry said while last week’s activity should be a good precursor for the weeks to come, it does not look to be as severe as last week.
“The latter half of next week is expected to post average temperatures in the range of 47 to 55 degrees, according to Accuweather. If this holds true, I would expect New York demand to sit in around 3.2 Bcf/d,” Fabry said.
Heading into the last week of April, Fabry said early outlooks show temperatures could drop into the lower 40s overnight, which could result in New York demand moving up to 3.5 Bcf/d and encroaching on 3.6 Bcf/d if average temperatures hold in the mid 40s.
NatGasWeather, however, indicated the potential for sustained strong demand was unlikely as sub-freezing temperatures would likely be necessary to drive heating demand or much hotter weather would need to take hold across more of the South to drive cooling demand.
Indeed, the trader said the current rally taking hold of New York likely won’t last.
“It should be done soon. Things are more bearish than bullish,” the trader said.
Forward prices across the rest of the New York illustrated this sentiment as Transco zone 6-New York June basis moved up just 6.6 cents between Monday and Thursday to reach minus 26.7 cents/MMBtu, while the balance of summer (June-October) tacked on 6.5 cents to hit minus 51 cents/MMBtu.
Elsewhere in the region, Dominion and TCO both announced weekly net injections for the storage week ending April 10, marking the first injections since late October, according to Bentek Energy.
With current storage levels sitting more than 30 Bcf below the five-year average, robust regional production and attractive prices should incentivize storage players to store their gas now.
The balance-of-summer strip at Dominion is currently trading at 52-cent discount to the winter 2015-2016 strip, NGI Forward Look prices show. At TCO, the balance of summer is about 35 cents below the prompt-winter package.
Meanwhile, over in the West, prices in Washington state remained somewhat supported by ongoing concerns about hydro conditions.
While most West market hubs softened by a few cents on the week, Northwest Pipeline-Sumas May basis picked up 3.3 cents to reach minus 39.4 cents/MMBtu. June basis inched up 1.3 cents to minus 37.5 cents/MMBtu, while the balance of summer barely added 1 cent to hit minus 37 cents/MMBtu.
Solar generation, which recently hit a new peak this month, has helped to keep prices down in California. Pacific Gas & Electric citygates and Southern California Border prompt-month prices fell between 1 and 2 cents this week.