Physical gas for Monday delivery showed its typical over-the-weekend pattern of declining prices as traders elected to make any spot purchases of gas on an as-needed basis.
A few points in the East did trade in positive territory, but declines of a nickel to a dime were common across the board. The overall market skidded 9 cents to $2.35.
Futures continued on their downward trek. At the close, July had skidded 6.4 cents to $2.642 and August was down by 6.5 cents to $2.665. July crude oil jumped $2.62 to $60.30/bbl.
The year-on-five-year storage deficit was cut to just 18 Bcf with Thursday's reported Energy Information Administration (EIA) inventory build of an unexpected 112 Bcf. Should the deficit narrow even further and become a surplus, continued price weakness is likely in the cards, according to analysts.
Teri Viswanath, director of natural gas strategy at BNP Paribas, called the rate at which storage is being filled "unmanageable" and said she expects storage issues to ultimately surface. "Despite above-normal temperatures and elevated fuel-switching within the electric power sector, the industry has surpassed last year's restocking effort with daily storage receipts increasing by an average 1.8 Bcf/d.
"Absent strong weather-related demand, U.S. natural gas prices will have to remain discounted for an extended period in 2015 in order to encourage enough demand to absorb surplus production. Based on the average cost of coal deliveries, Gulf-based gas prices will need to remain much below $3 (and possibly below $2.50 with milder weather) in order to encourage sufficient power demand growth."
Viswanath is sticking to her guns with a 2015 price forecast of $2.85/MMBtu. She admits that weather issues could surface July-September and could impact the Q3 forecast of $2.75, but "Based on our outlook for supply-demand balances, we see more downside risk ahead for natural gas prices.
"Last month we recommended that investors remain short by rolling the recommended expiring May '15 Henry Hub position into a Nov '15 short. With prices now re-aligned with that entry level, we see an opportunity to enter or add to that existing position. Over the past seven -year cycle of excess, surplus production has forced the November futures contract to align with the summer futures strip (April-October). With the Nov '15 continuing to trade at a slight premium to the front of the curve, we think this positioning offers the greatest opportunity as the market recognizes the further need for demand-side balance."
Others also see price weakness on the horizon. "We still look for a surplus to be established next month, and such a development may require additional discounting," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday. "We viewed today's downside price response of almost 3% as appropriate. However, some further weakening would appear likely during the next couple of sessions given today's close below our expected support of $2.74. Next chart support develops at about [the] $2.61 level. While such a test is easily within reach next week, such a development may require another bearish EIA release.
"Our downside target remains intact to the $2.50 area, but achievement of such may require a couple more weeks unless temperature trends prove unusually mild. Meanwhile, we will note today's significant weakening in curve structure as an additional bearish portent that should keep the large institutional traders interested in the short side of the market. Overall, we are advising a continued bearish approach to this market."
Physical market quotes were awash in red ink for Monday deliveries as eastern market centers were expected to get a break from recent warmth and humidity. Forecaster Wunderground.com predicted a Monday high in Boston of 55, well below its seasonal norm of 70, and New York City was expected to see a Monday maximum of 61, well off its normal high of 74. Philadelphia was seen reaching 65 Monday, 7 degrees below normal.
Gas for delivery Monday at the Algonquin Citygate was flat at $1.60, but gas on Iroquois Waddington dropped 31 cents to $2.39. Packages on Millennium fell 7 cents to $1.23.
Market observers have noted a slide in Algonquin Citygate quotes recently, but one marketer said it was all about a lack of demand. "There is just no load, and absent any demand Algonquin Citygate will gravitate toward a summertime Marcellus price plus fuel, plus a few pennies, but that is about it. There is not enough load to the point where you need any incremental molecules except from the Marcellus."
Marcellus points also weakened. Transco Leidy Monday deliveries fell 7 cents to $1.21, and gas on Tennessee Zone 4 Marcellus dropped 6 cents to $1.12. Gas on Dominion South skidded 16 cents to $1.24.
Gas bound for New York City on Transco Zone 6 added a nickel to $2.22, and deliveries to Tetco M-3 fell 10 cents to $1.34.
Gulf prices also softened. Gas at the Henry Hub for Monday fell 13 cents to $2.64, and parcels on Tennessee 500 L changed hands 8 cents lower at $2.61. Gas on Transco Zone 3 was seen at $2.61, down 13 cents, and deliveries to Katy were quoted 13 cents lower at $2.58.
If National Weather Service (NWS) forecasts are correct, next week's storage report may just be a plump one as well. NWS said heating and cooling requirements for the week ended May 30 are expected to be below average in major population centers, thus making it difficult to count weather demand as a market driver in next week's storage report. NWS forecasts combined heating degree days (HDD) and cooling degree days (CDD) for New England at 33, or 10 below normal. New York, New Jersey and Pennsylvania show a combined DD level of 40, or one above normal, and the greater Midwest from Ohio to Wisconsin is expected to endure 44 DDs, or eight below normal.
Gas buyers seeking to supply power generation across the MISO footprint may have an ample supply of wind generation to tap going forward. WSI Corp. in its Friday morning forecast said, "A south-southwest to northerly flow associated with the expected cold font will support increasing wind generation during the next couple of days. Output may peak tonight into early Saturday close to 9 GW. Wind generation is expected to decrease as the weekend progresses and remain modest early next week with output between 3-5 GW."
WSI said the strong wind generation was the result of a cold front expected to advance south and east across the power pool Friday into the weekend, with outbursts of heavy showers and thunderstorms. Warm temperatures and humidity were expected ahead of the front, but cooler, drier conditions are expected once the front passes.