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Cash NatGas Posts Solid Gains, But Futures Just Inch Higher

Gas for weekend and Monday delivery rose in Friday's trading as a warm, humid weekend was forecast for eastern population centers and Monday on-peak power surged.

Futures worked higher and did manage to hold the technically significant $3 level. At the close, June had added 0.8 cent to $3.016 and July was higher by 0.7 cent to $3.070. June crude oil fell 19 cents to $59.69/bbl.

Short-term traders are optimistic about prices. "We've settled above $3 twice, so that is a positive sign. We may even come in higher on Monday just based on the close," said a New York floor trader.

"You could now peg support at $3, but I don't think that is going to last very long. I still think you are looking at $2.75 on the downside, and at the moment the market is right at $3 resistance. I still see a $2.75 to $3 trading range, unless it stays above $3. We have to see what the market does over the weekend."

Analysts see gas-fired generation as a significant driver in the recent price advance.

"This market continues to exhibit surprising resiliency as it managed to post another new high extending back to February even amidst negligible impetus from the weather factor," said Jim Ritterbusch of Ritterbusch and Associates in closing comments. "As is the case in any market, much of the momentum behind price swings tends to be driven by changing focus from one factor to another. In assessing the upside price acceleration of the past couple of weeks it appears that increasing attention is being given to a surprisingly strong pace of power demand. Although various factors are likely at work in boosting EG [electric generation] consumption, a common theme amongst most observers appears to be one in which coal to gas substitution has been cranked up appreciably following the recent gas price decline to around $2.50. While we can concede to such a development, we will also note that the impact on the balances hasn't been that great as [Thursday's] 111 Bcf injection was only about 5 Bcf smaller than average industry expectations.

"Looking ahead to next week, this seasonal supply build will almost certainly be downsized by as much as 15-20 Bcf as a result of some hot temperature trends that have scattered across the eastern half of the nation. Nonetheless, impact on the supply deficit against five-year averages should prove limited given the average decline of about 89 Bcf during the second week of May. All in all, we have shifted off of a bearish and into a neutral camp temporarily as we concede to a bullish looking chart picture that suggests limited resistance until about the $3.13 area per nearby futures. Although our long term downside possibilities remain virtually undisturbed at about the $2.50 area, attainment of this level has now been pushed back to next month and will likely require some cooperation from a cool start to the summer."

Other observers are a little perplexed about the recent strength in futures prices in light of triple-digit storage builds and expectations of record season-ending inventories. "More gas has been injected since March compared to this time last year, and storage remains on track to beat record," said Breanne Dougherty, an analyst with Societe Generale in New York.

"While we would like to have a definitive explanation for the persistent upside pressure gas has seen over the last couple of weeks, we find ourselves at a bit of a loss. Supply looks good, and there has yet to be any information that would have us change our base-case flat profile this summer. Demand is also performing as expected. We continue to feel a price above $2.75/MMBtu has the ability to detrimentally impact generation loads through June considering the looseness in the coal market and reduced elasticity in the segment, but are becoming increasingly fond of the spiking core summer profile that we have held in our expectation and are neutral on our base-case fall price profile at the moment."

Market technicians are less concerned with storage and supply than they are with Elliott Wave and retracement parameters. "With the $2.939 level in our rear-view mirror, bulls can now set their sights on the next area of contention at $3.399-3.494," said Brian LaRose, a technical analyst with United ICAP. "This zone represents 0.236 of $6.493 to 2.443 and 0.500 of $4.544-2.443.

"[We] see $3.034 and $3.249 as the only hurdles standing between here and this objective. At this point, we do not anticipate encountering any significant resistance from these levels," he said in closing comments Thursday.

Marketers didn't see any reason to chase the physical market higher. A Michigan marketer said "it just keeps going up and up and who knows how much farther it will go. Our price on Consumers for the weekend would be $3.11, and at first we were going to buy, but then backed off thinking it might [eventually] go lower."

"We also think that our customer's usage might be less in the summer and may hold off buying for storage until then."

In the physical market prices for Midwest weekend and Monday delivery posted solid gains. Deliveries on Alliance gained 6 cents to $2.94 and packages at the Chicago Citygate rose 6 cents also to $2.93. On Consumers, gas changed hands at $3.10, up 5 cents and gas on Michcon added a 6 cents to $3.10. Gas at Demarcation was also 6 cents higher at $2.85.

In the Gulf, gas on ANR SE rose by 8 cents to $2.90 and gas on Columbia Gulf Mainline came in 9 cents higher as well at $2.91. At the Henry Hub weekend and Monday packages rose 9 cents to $2.96, and at Katy gas was seen at $2.91, up 9 cents.

Temperatures over the weekend were expected to rise, and Monday on-peak power surged. AccuWeather.com forecast that Boston's Friday high of 67 would make it to 70 Saturday and 71 by Sunday. The normal high in Boston this time of year is 66. New York City's Friday peak temperature of 74 was expected to reach 79 Saturday and a toasty 85 on Sunday. The normal mid-May high in the Big Apple is 71.

Intercontinental Exchange reported that on-peak Monday power at the PJM West terminal jumped $19.67 to $57.67/MWh, and Monday power at the ISO New England's Massachusetts Hub added $3.57 to $28.98/MWh.

Gas buyers for power generation in the Northeast may be looking at some hefty weekend loads. According to Brian Lada, a meteorologist with AccuWeather.com, "Much of the Northeast is in for a warm and humid weekend following the cooler weather that occurred during midweek. Shorts and short sleeve shirts will be common attire around the region as cities such as Pittsburgh, Baltimore and New York City all experience an uptick in temperatures and humidity.

"This weekend will prove to be a good opportunity for people to test out their air conditioners before the heat of summer builds over the coming weeks. A slight rise in temperature will take place on Friday before the warmth and humidity builds throughout the weekend. Sunday appears to be the warmer of the two days this weekend with some locations flirting with the 90-degree mark on Sunday afternoon."

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