It was a tale of two, if not three, markets Monday. Physical gas prices for Tuesday delivery in the Northeast and Mid-Atlantic diverged sharply from all other market points primarily on short-term weather and power market changes, and the futures market had to deal with collapsing petroleum prices engineered in large part by a surging dollar resulting from economic fallout following a Greek "No" vote Sunday.
Eastern prices rebounded sharply from record lows posted last week with $1.00-plus gains common at many market points (see Daily GPI, July 2). Gains were aided and abetted by strong next-day power prices, and supportive weather. Outside the East, prices softened anywhere from a nickel to a dime also on weather concerns as temperatures at major population centers were forecast to plunge Tuesday.
Overall, the strength in the East outperformed the broader weakness, and the market gained 12 cents. Futures fell, but most of the drop was in place at the market's open and futures were held to about a 5-cent range.
At the close August had skidded 6.6 cents to $2.756 and September was down 7.1 cents to $2.766. August crude oil was hammered $4.40 to close at $52.53/bbl.
Analysts were not convinced that the fall in natural gas futures had much to do with the petroleum price vortex. "I don't think so," said Tom Saal, vice president at FC Stone Latin America LLC in Miami, when queried of any relation between global financial turbulence and natural gas prices.
"Not in the short run, but it will impact the dollar and is hitting crude oil,” Saal said. “I don't think crude and natural gas are that correlated. If anything, if crude oil goes down, natural gas should go up.
"The high price of crude oil was causing oversupply of [associated] natural gas production, so technically lowering oil prices would decrease [natural gas] supply, natural gas associated with crude oil production. I'm not ready to make that connection based on Greece," he said.
"Natural gas, relatively speaking, held its own," said a New York floor trader. "Natural gas still has room down to $2.58, but any kind of turnaround in these commodities will rally natural gas as well. It's kind of a panic scene. I look for traders to get out, and the spreads will make the market even more bearish."
Prior to the day's trading risk managers were comfortable on the sidelines. DEVO Capital Management President Mike DeVooght is advocating holding no market positions.
"Moderate temperatures and adequate supplies continue to keep the gas market on the defensive,” he said in a weekend report. “On a trade basis, we will continue to stand aside and await future developments.” He recommended trading accounts, end-users, and producers stand aside the market.
Eastern physical market prices soared from the depths of last week as weather forecasts were supportive, and next-day power prices jumped. Intercontinental Exchange reported that peak power for delivery Tuesday to the New York ISO's Zone A delivery point (western New York) vaulted $15.00 to $52.00/MWh, and peak power at the ISO New England's Massachusetts Hub jumped $15.80 to $31.80/MWh. On-peak power at the PJM West Hub gained $6.44 to $43.00/MWh.
Gas for delivery Tuesday at the Algonquin Citygates gained a stout $1.05 to $1.87, and parcels on Iroquois Waddington added $1.03 to $2.85. Gas on Tennessee Zone 6 200 L changed hands 84 cents higher at $1.85.
Gas on its way to New York City on Transco Zone 6 gained $1.26 to $2.15, and deliveries to Tetco M-3 rose 64 cents to $1.42.
Next-day gas on the West Coast had a hard time navigating plunging power prices as well. Intercontinental Exchange reported that next-day deliveries of on-peak power to NP-15 fell $5.63 to $38.00/MWh, and parcels on SP-15 fell $5.11 to $38.07/MWh. Next-day on-peak power at Mid-C tumbled $18.43 to $45.76/MWh.
Gas at the PG&E Citygate fell 3 cents to $3.16, and gas at the SoCal Citygate shed 8 cents to $3.09. Deliveries to the SoCal Border were seen 6 cents lower at $2.87, and gas on El Paso S Mainline was quoted 12 cents lower at $2.89.
Marcellus prices also participated in the day's gains. Next-day gas on Millennium rose 40 cents to $1.17, and deliveries on Transco Leidy were quoted 58 cents higher at $1.21. Gas on Tennessee Zone 4 Marcellus added 53 cents to $1.13, and gas on Dominion South came in at $1.27, up 55 cents.
Futures traders also had to deal with near-term weather outlooks continuing to moderate in eastern and Midwest energy markets. WSI Corp. in its six- to 10-day outlook said Monday's "period forecast is cooler than previous forecasts across the Southwest, Midwest and Northeast. The northern tier of the nation, as well as Texas, are a bit warmer. Period PWCDDs (population weighted cooling degree days) are down 3 to 57.4. Forecast confidence is considered average at best today. Despite changes and uncertainty with tropical activity across the Pacific, medium-range models are in reasonably good agreement with the progression of the pattern.
"There are risks in either direction at this point. The GFS offers a risk to the cooler side across the eastern half of the nation late in the period. This guidance and a potential positive PNA [Pacific North American event] offers and upside risk across the interior West."