Physical natural gas prices for Wednesday delivery firmed in Tuesday's trading as gains of a nickel or more were posted in the Gulf Coast, Midwest, Midcontinent, Rockies and California.
Eastern points led the day's advance with quotes seen about a dime higher, and overall the market added 4 cents to $2.38. Futures prices managed to stay within their recent trading range, and at the close May had added 3.9 cents to $2.575 and June was up by 4.2 cents to $2.620. The expired May crude oil contract fell $1.12 to $55.50/bbl.
The overall market may have added close to a nickel, but Marcellus gas had difficulty holding $1. Those familiar with pipelines in the area put the culprit at weak demand, but major pipeline maintenance May 1 could have further adverse impacts. "Right now I think the buying is pretty limited. We didn't even see restrictions at [Tennessee] Point 321 or 319 going east. In general, the weather is pretty mild. New York City is 61 with a high of 66, so demand is pretty low," said an industry observer.
Gas for delivery Wednesday on Millennium fell 3 cents to $1.11, while deliveries on Tennessee Zone 4 Marcellus rose 2 cents to $1.03. Gas on Transco Leidy shed 14 cents to $1.12, but gas on Dominion South was quoted 11 cents higher at $1.51.
The abundance of gas in the area was highlighted by the day's market response on Millennium. The 3-cent decline came despite expected maintenance work reducing flows by upwards of 500 MMcf/d. Industry consultant Genscape said "pig runs on Millennium will necessitate capacity reductions through Wagoner West and East Segments from Wednesday, April 22, through Sunday, April 26. Capacity through Wagoner West will be reduced to 483 MMcf/d from the normal 971 MMcf/d. Flows will be reduced by roughly 430 MMcf/d relative to the prior 30-day average. Capacity through Wagoner East will also be reduced to 483 MMcf/d from the normal of 886 MMcf/d. Roughly 360 MMcf/d of flows will be impacted relative to the past 30-days average. During a similar event last June, Millennium compensated for the lowered ability to flow supply by cutting receipts from Stagecoach and a collection of gathering points."
The industry observer noted that "gas can get into Millennium from the Marcellus via Stagecoach and off National Fuel. Millennium feeds into Algonquin. Much of that gas is baseloaded and doesn't get sold much on the day market, but I could be wrong. First-of-the-month gas gets nominated there and gets matched up with transportation for the whole month. It doesn't move around too much.
"I think I would be on the lookout May 1 when Transco has their maintenance work. I think you will start seeing shut-in wells and the Leidy line is likely to be impacted, but gas will also try to find a home on Tennessee."
Deliveries to the Algonquin Citygates rose 12 cents to $3.40, and deliveries to Iroquois Waddington added 6 cents to $2.91. Gas on Tennessee Zone 6 200 L gained 17 cents to $3.16.
Next-day peak power prices in the area held firm. Intercontinental Exchange reported that next-day peak power at the New York ISO Zone A delivery point rose 15 cents to $29.15/MWh, and power at the ISO New England's Massachusetts Hub rose 53 cents to $36.05/MWh.
Temperatures for Wednesday were expected to continue mild in the East and cooler in the Midwest. Forecaster Wunderground.com predicted that the high Tuesday in New York of 65 would hold Wednesday before slipping to 55 Thursday. The normal high in New York is 63. Boston's high of 66 Tuesday was seen easing to 63 Wednesday and then falling to 53 on Thursday. The normal high in Boston is 58.
Quotes in the Midwest posted solid advances. Gas on Alliance added 8 cents to $2.68, and packages at the Chicago Citygates tacked on 6 cents to $2.65. Parcels on Michcon were seen at $2.79, up 7 cents, and on Consumers Wednesday deliveries changed hands at $2.83, up 6 cents.
Wunderground predicted that the high of 54 Tuesday in Chicago would slide to 52 Wednesday before inching up to 55 Thursday. The seasonal high in the Windy City is 62.
Some saw the day's futures gain as a combination of weather and production. "We see this gain as potentially due to the downward revision of production versus yesterday, from 73 Bcf/d to 71.6 Bcf/d," said Natgasweather.com's Andrea Paltrinieri. "Moreover, strong spot prices due to cooler weather in the Midwest are providing some support to the front contract."
Analysts saw Monday's 10-cent slide as something of a curious response to near-term weather, but they see no reason to change longer-term strategy.
"This market was under heavy selling pressure right out of the gate this [Monday] morning despite some weekend updates to the short-term temperature views that looked supportive from our perspective," said Jim Ritterbusch of Ritterbusch and Associates. "While conceding that below-normal temps at this time of the year don't translate to much HDD accumulation, cold trends can still slow storage injections as will likely be indicated in next week's EIA release.
"As far as this Thursday's numbers are concerned, we will be looking for an injection about double year-ago and five-year average builds of around 45 Bcf. This appears to be a factor that contributed to some of [Monday's] selling and a bullish surprise such as a hike of less than 75-80 Bcf may be required to jump start a meaningful price advance. For now, we suggest holding any short positions that were re-established last week within the $2.71-2.74 zone basis June futures. Our longer-term game plan remains unchanged, and we will still be looking to employ further price declines into the $2.40-2.50 zone as an opportunity to establish investment type longs on a scale-down basis. We will continue to note limited weakening in term structure even on days when prices decline by around 3.5%"
Overnight weather models called for a modest incursion of cooler air near term, but otherwise conditions are expected to be near seasonal norms. Commodity Weather Group in its Tuesday morning report said, "We continue to track a cool push into the Midwest, South and East in the first half of the forecast period, which delivers a brief burst of stronger late-season heating demand later this week into early next week. Lows drop into the 30s for the Midwest, 30s-40s for the East Coast for mainly overnight heating demand enhancement impacts. [Tuesday's] forecast also sees the South shift a bit cooler, which removes more cooling demand than it adds on the heating side here by late April.
"Otherwise, the West starts to shift a bit warmer by later six-10 day before we get to the very muddled look of the 11-15 day, which is also the start of the next month. The models continue to show conflicting influencers that work against each other to prevent any strong dominated warming or cooling. The result is many areas closer to near-normal temperatures and very low demand levels that are essentially climatology levels for early May."