Gas for physical delivery Wednesday surged in Tuesday trading as forecasts in key Midwest markets showed high temperatures as much as 15 degrees below seasonal norms. Solid gains were posted in the East, Gulf, Midcontinent, Midwest and California, and the overall market added 6 cents to $2.84.
Futures prices started out strong but ended the day in the loss column after following power prices lower. At the close, June had fallen 6.2 cents to $2.948 and July was off 7.0 cents to $2.991. June crude oil plunged $2.17 to $57.26/bbl.
June futures traded as high as $3.105, a new high for the recent advance, but at the close had shed more than 15 cents on indications a fall in power prices had prompted a decline in natural gas. "I had heard that it was from a fall in Northeast power, but I was getting my information second hand," said a Florida trader.
The trader added that the day's action was "a textbook reversal top on a daily chart. You made a new high for the move and settled below three prior days' settlements. That should bring in some selling tomorrow.
"Whatever caused the power prices to be initially strong and then decline today will likely add to weaker prices as well. If there were some fundamental reason holding power prices up, that may be gone."
Intercontinental Exchange reported that next-day on-peak power at the PJM West Hub fell $17.50 to $35.37/MWh.
Traders see the potential for continued movement higher, but longer term they view the recent advance within a bearish framework. "Although this market traded in the negative column through much of the session, we felt that futures did a good job of maintaining last week's strong gains," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients Monday.
"Newly acquired longs are seeing no strong reason to accept profits at the present time given lack of significant chart resistance until about the $3.13 area per nearby futures. A surprisingly strong pace of power demand continues to provide a strong bullish backdrop and will likely remain as a supportive force, at least until the next weekly EIA storage report is revealed.
"We will be looking for an injection of around 93-95 Bcf that would compare with last year's 106 build and the five-year average increase of about 86 Bcf. Although the shortfall against the averages will likely narrow to around 30 Bcf, the process of eliminating the remaining deficit could prove arduous in view of expected warm temperature expectations along the eastern seaboard through month's end.
"All in all, we are maintaining a neutral trading bias in suggesting against attempts to pick a top to this month's strong upside acceleration. But at the same time, we see more downside than upside potential from current levels, and we will be looking for a place to reestablish a bearish trading posture."
Forecasters are calling for somewhat more cooling load in their near-term forecasts. WSI Corp. in its Tuesday morning six- to 10-day outlook said the period "is warmer than the previous forecast across a good portion of the nation due to recent model trends (albeit slightly cooler across the Northeast early in the period). As a result, period GWHDDs are down -0.1 to 6.6 for the CONUS. PWCDDs [population-weighted cooling degree days] are up +2.9 to 31.3.
"Forecast confidence is considered near to slightly above average standards under good large-scale agreement between the medium-range models. However, there remain some localized uncertainty with the pattern as expressed by our clustering algorithm. The GEFS [Global Ensemble Forecast System] is promoting some upside risk to the forecast across MISO in through western PJM. The ECMWF is a touch more aggressive, with eastern PJM and southeastern U.S. warmer risks, with a cooler forecast across southern MISO in through the SPP"
If volatile weather patterns weren't enough for traders to deal with, pipeline work is causing a reduction in flows of close to 1 Bcf/d. "Spring maintenance is having a greater-than-normal impact on production this month," said industry consultant Genscape. The firm added that its data showed that "Lower 48 dry gas production today at 72.73 Bcf/d, down 0.85 Bcf/d from yesterday. The greatest declines are in Pennsylvania where infrastructure modifications and pipe maintenance is knocking off 350 MMcf/d of supply DOD.
"Those declines along with others are holding total month-to-date production average at 73.1 Bcf/d. That represents a 0.3 Bcf/d -- or 0.4% -- decline from April.
Next-day prices in the Midwest responded to temperature forecasts calling for much below normal temperatures throughout major population centers. AccuWeather.com forecast that Milwaukee's Tuesday high of 50 would make it to 53 Wednesday before rising to 66 Thursday. The seasonal high in Milwaukee is 66. Chicago's Tuesday high of 57 was seen dropping to 55 Wednesday and reaching 69 Thursday. The normal high in the Windy City this time of year is 71.
Gas on Alliance and at the Chicago Citygates rose 8 cents to $3.13, and deliveries to Northern Natural Ventura added 8 cents to $3.05. Parcels on Michcon changed hands at $3.18, up 5 cents, and gas on Consumers was quoted at $3.20, up 6 cents.
Midcontinent locations also firmed. Gas on ANR SW rose 2 cents to $2.79, and deliveries to NGPL TexOk added 7 cents to $3.05. On Panhandle gas changed hands at $2.86, up 6 cents, and packages on OGT came in a nickel higher at $2.85.
AccuWeather.com's Jillian MacMath said, "Temperatures in the Chicago area will continue to drop below normal through midweek before rebounding ahead of the holiday weekend. Following a cold front that moved through the city on Sunday, high temperatures will fail to climb to 60 degrees F through Wednesday. Cloudy skies and a wind off the lake will make Tuesday feel cool and Wednesday even cooler. By the middle of the week, highs will fail to climb out of the lower 50s. Lows on both nights will drop into the 40s F. As the holiday weekend nears, temperatures will rebound to more seasonable levels. Temperatures Thursday and Friday will climb into the mid-60s F, about 10 degrees F below the average for this time of year."