Physical natural gas for Tuesday delivery bounded higher Monday as a firming power and weather environment lifted quotes at nearly all points.
Overall, the market rose by 11 cents to $2.54 with average gains ranging from 5 cents for the Midwest and Midcontinent to robust double-digit gains in the Northeast. Both power loads and prices increased, and weather forecasts in key eastern markets had temperatures expected 15 degrees or more above normal.
Futures quotes posted a fifth straight session of advances, and traders see key market resistance looming. At the close, June was up 4.5 cents to $2.821, and July had added 4.7 cents to $2.878. June crude oil slipped 22 cents to $58.93/bbl.
All sections of the country recorded gains, but in the Northeast, advances averaged 17 cents as next-day peak power prices made incremental purchases of gas for power generation attractive. Intercontinental Exchange reported that on-peak Tuesday power at the ISO New England's Massachusetts Hub rose $1.24 to $28.00/MWh, and on-peak next-day power at the New York ISO's Zone A delivery point (Western New York) soared $14.00 to $42.00/MWh. On-peak power at the PJM West terminal added $6.72 to $51.83/MWh.
Gas at the Algonquin Citygates added 34 cents to $2.00, and deliveries to Iroquois Waddington were seen higher by 35 cents to $2.96. Gas on Tennessee Zone 6 200 L rose by 22 cents to $1.97.
In the Mid-Atlantic, gas bound for New York City on Transco Zone 6 changed hands 11 cents higher at $2.76, and gas on Tetco M-3 gained 32 cents to $1.80.
Eastern power loads were also forecast to rise. ISO New England predicted peak load Monday of 14,910 MW would reach 15,150 MW Tuesday before easing to 14,800 MW Wednesday. The New York Independent System Operator calculated sustained stout spring time loads as well. Monday's peak load of 18,834 MW was anticipated to ease slightly to 18,821 MW Tuesday and 18,581 MW Wednesday.
Temperatures along the Eastern Seaboard were expected well above seasonal averages. Wunderground.com said Monday's high in New York City of 83 degrees would drop to 81 Tuesday before falling to 73 Wednesday. The normal high is 68. Boston's 84 Monday high was seen falling to 78 Tuesday and 76 Wednesday, 14 degrees above normal.
Gulf quotes added about a nickel. Parcels on Transco Zone 3 rose 6 cents to $2.72, and deliveries to the Henry Hub were quoted a nickel higher at $2.72. Gas on Columbia Gulf Mainline added 5 cents to $2.67 and gas at Katy came in 5 cents higher at $2.67.
The June futures contract traded a modest 84,000 contracts, and according to a New York floor trader, "it was a struggle getting up there. The $2.87 area is going to be key, and beyond that $3. Short term higher, but then it’s back to $2.50.”
Analysts see moderate weather and hefty injections taking the edge off in not reversing the recent string of market advances.
"Seasonally, during either the first or second week of May, the population-weighted cooling degree days begin to outpace the number heating degree days, signaling the official end of the heating season," said BNP Paribas analyst Teri Viswanath, director of natural gas strategy. "The near absence of weather-related demand during this 'shoulder period' enables increasing volumes of excess supply to be siphoned off into storage facilities. Consequently, the aggregate injections that occur during May are typically the largest of the season, with the five-year average build amounting to 396 Bcf or roughly 100 Bcf of working gas stocked away each week during the month.
"Moreover, we expect that last week's rally will likely reverse over the course of this week as the daily pipeline receipts conclusively reveal the first triple-digit build of the season. Based on the average rate of injections recorded so far this week, the industry is on pace to build 114-118 Bcf of working gas in storage for the week ending May 8."
Commodity Weather Group (CWG) in its Monday morning six- to 10-day outlook showed above and much above normal temperatures from New England into the Ohio Valley extending to the Southeast. A ridge of below normal temperatures is situated along the Continental Divide. The “estimated changes from last Friday are a bit stronger than expected thanks to more significant warmer changes in the East and sometimes Southeast, offset a bit by some cooler shifts at times in the West," said CWG President Matt Rogers.
"One stronger peak day to watch” is next Monday (May 11), “when pre-frontal warming could surge the lower eastern PJM to the upper 80s (we are forecasting 88 F for Washington, DC) with a bit more humidity than expected this week. Texas continues to escape significant heat though and mostly leans toward the seasonal to cooler side with frequent rain risks."
Market technicians contend "the bears have lost control of this market," according to United ICAP Vice President Walter Zimmermann last Friday.
"We have now five consecutive bullish daily candlesticks. The weekly candlestick is a bullish engulfing pattern. The candlestick for the month of April is a hammer bottom. Bulls are firing on all cylinders technically. But all this will be for naught if the bulls can not finish what they started. To confirm a bottom, bulls need to clear $2.939 (.236 of 4.544-2.443) and $3.0399 (.236 of 6.493-2.443).”
Mike DeVooght, president of Colorado-based DEVO Capital, said funds and managed accounts still hold a large short position, but it’s “that time of year when the natural gas is searching for direction as we enter the summer cooling season. As of now, the jury is still out on whether or not the market can rally this summer. A further short covering rally is very possible from these levels, considering how short the funds are at this time. On a trade basis, we will stand aside and await further development."
Tom Saal, senior vice president at FC Stone Latin America LLC in Miami, pointed to long-term oversold conditions on the monthly chart and said they have a "very good batting average." Long-term Fibonacci retracement levels (trading targets) are at $4.453, 3.972, and 3.378, he said.