Natural gas came back from the weekend with a vengeance as double-digit gains were the norm for both the physical and futures markets thanks to a tropical weather system developing in the Gulf of Mexico.
Most physical markets put up gains of between 10 and 15 cents, but Northeast and California points posted more pronounced increases as market players tried to recoup some of Friday’s steep losses.
Futures were also sharply higher as both weather agencies and gas market players kept a watchful eye on a tropical disturbance in the Gulf of Mexico that had the potential to develop into a tropical storm or depression by Tuesday and threaten coastal Texas and Louisiana (see related story).
In a midday note to clients, forecasters with NatGasWeather said the weather system continued to struggle to strengthen into something more than just “a cluster of showers and thunderstorms”, and was running out of time.
At the time the note was sent to clients, the National Hurricane Center had yet to declare the system a tropical depression, which is a grade lower than a Tropical Storm.
“This essentially means the system isn't well organized and only has squalls of stronger winds,” NatGasWeather said. “The main impact from this storm will be to bring heavy rains to eastern Texas and the South over the next few days as it rapidly tracks inland by strong steering currents.”
Still, the threat of the storm alone was enough to spook natural gas futures traders.
The Nymex July gas futures contract settled 13.9 cents higher at $2.889 after trading in a more than 10-cent range throughout the day. The contract fell as low as $2.764 early in the session and traded as high as $2.894.
“It's actually going to be beneficial in easing nat gas demand for a few days as it provides cooler temperatures with plenty of cloud cover and showers,” NatGasWeather said. “We are obviously not very impressed with the system, and if it's the main reason for today's gains, it seems overdone to our view.”
But Teri Viswanath, director of commodity strategy at BNP Paribas, said Monday’s rally was likely more a reaction to the heat experienced thus far in June.
“If the forecasts verify, this will be the seventh warmest June on record,” Viswanath said. “Given higher-than-anticipated power demand, the market is becoming less concerned about the supply surplus.”
On the physical side, Northeast markets put up the strongest gains in Monday trading despite mostly moderating temperatures following last week’s heatwave.
New England’s Algonquin Gas Transmission city-gates traded at $1.99 for Tuesday delivery, up about 44 cents on the day despite easing demand due to milder weather in the region.
Industry analyst Genscape shows demand peaking at 1.96 Bcf/d on Tuesday, down from an average 2.03/Bcf/d during the previous seven days, and then sliding to around 1.78 Bcf/d by Friday as daytime temperatures are forecast mostly in the low to mid-70s this week, near normal for this time of year.
Marcellus points posted hefty gains as well. Transco Zone 4-Marcellus jumped 27 cents to average 98 cents, while gas being delivered via the Transco Leidy Line popped up some 21 cents to $1.62.
Transco Zone 6-New York climbed 31 cents to average $3.01 as temperatures in the Big Apple are forecast by AccuWeather to reach 82 Tuesday and then fall to the mid- and upper 70s for Wednesday and Thursday before returning to the mid-80s on Friday.
“It seems like they’re trying for the $3.00 level again, and it’s not justified,” a Northeast trader said. “Seven days of heat doesn’t change the trend.”
Indeed, the tropical disturbance churning in the Gulf could throw another dose of heavy rain and perhaps flooding into parts of the Midwest and perhaps the East late in the week, AccuWeather said.
Meanwhile, California markets posted stout increases of their own as rising temperatures are in the forecast for the southern part of the state. Southern California-Border was up 17 cents to $2.87, and SoCal Citygates prices picked up 16 cents to average $3.05.
AccuWeather shows daytime temperatures in Los Angeles reaching the low to mid-80s throughout the week, boosting demand well above last week’s levels.
California demand is projected to peak at 6.67 Bcf/d Tuesday and then barely slide back to around 6.61 Bcf/d by Friday, according to Genscape. This is a dramatic increase from Genscape’s previous seven-day average of 5.35 Bcf/d.
Gains in the northern part of the state were much less pronounced, with Pacific Gas & Electric Citygates averaging $3.15, up about 6 cents on the day.
Along the Gulf Coast, where the tropical system is expected to come ashore late Monday or early Tuesday, prices were up around 10 cents on average.
Henry Hub next-day gas traded 10 cents higher at $2.86, while Houston Ship Channel picked up a more modest 6 cents to average $2.80.
Farther east, prices at Florida Gas Transmission Zone 3 were up 12 cents to $2.92.