Next-day physical natural gas continued to move higher Tuesday, though not at the double-digit pace of Monday. Gains of a nickel or more were widespread, but a few locations in the Marcellus and Rockies managed to slip into the loss column by a few pennies.
Overall, the market added 3 cents to $2.73. Weather forecasts still called for above-normal temperatures, and next-day power prices continued to advance. Futures traders navigated the termination of August options, and prices managed a modest gain, leaving sellers of $2.80 call options licking their wounds and sellers of $2.80 put options tallying their gains. At the close, August had risen 3.2 cents to $2.821 and September was higher by 2.8 cents to $2.816. September crude oil added 59 cents to $47.98/bbl.
Midwest buyers are watching physical prices with intense interest as gas begins to move west out of the Marcellus on expansions such as REX Zone 3 (see related story). A Nebraska utility perusing its normal supply channels out of Northern Natural Ventura sees significant changes. Typically, Northern Natural Ventura will trade at a discount to the Chicago Citygate, but that may change. "We don't trade out of Chicago, but we just watch it," a Nebraska utility buyer told NGI.
"We just watch daily prices but are anticipating that we are going to start seeing some of that [Chicago Citygate losing some of its historical premium to Ventura] with the influx of westbound gas. We don't have any transportation to move gas from Chicago, but as Chicago becomes well supplied, what is that going to do to those historical spreads as gas keeps getting trapped further and further west?
"Maybe more supplies will have to be moved on to Northern Natural off of Northern Border at Ventura. That could physically change the dynamic of how gas moves on Northern Natural. We could have a lot of supply to the north, and that could affect pricing all the way to Demarcation," he said.
Next-day gas on Alliance added 3 cents to $2.93, and deliveries to Chicago Citygate rose 4 cents to $2.92. Gas at Northern Natural Ventura rose 3 cents to $2.86, and gas at Demarcation was flat at $2.84.
Most of the day's big moves were seen at eastern points, though prices made a counter-intuitive decline at some points in spite of forecast warmer temperatures. Forecaster Wunderground.com said Tuesday's high in New York City of 95 would ease to 92 Wednesday and 89 by Thursday. The normal high in New York City is 84. Philadelphia's 92 high Tuesday was seen rising to 95 Wednesday before falling to 92 Thursday. The seasonal high in Philadelphia is 83.
Gas on Tetco M-3 was seen at $1.65, down 4 cents, and deliveries on Transco Zone 6 New York added 3 cents to $2.99.
Marcellus locations were mostly lower. Transco Leidy fell 4 cents to $1.46. Gas on Tennessee Zone 4 Marcellus was quoted at $1.25, down 7 cents. Gas on Dominion South was flat at $1.52.
Next-day spot power continued to bound higher. Intercontinental Exchange reported that on-peak Wednesday power at the ISO New England's Massachusetts Hub gained $6.93 to $61.32/MWh. Peak power at the PJM West Hub jumped $24.79 to $78.79/MWh.
The day's futures trading didn't change the technical landscape much. According to market technicians, August futures would have to move either 8 cents lower or 12 cents higher to pique their interest. "So far, natural gas has managed to bounce in front of $2.710," said Brian LaRose, a market technician at United ICAP, in closing comments Monday. "The question now, can the bulls clear resistance at $2.914 and shift the technicals back in their favor? If so, there is hope for further upside. If not, the A=C objectives from the $3.105 high will be our next downside targets; 0.618 a=c cuts at $2.612; a=c cuts at $2.402. Between $2.710 and $2.914 we are stuck in neutral territory."
With the market stuck in neutral territory, traders find opportunities few and far between. "The ability of this market to maintain value in the face of what appears to be some bearish weekend adjustments to the one- to two-week temperature views appears to be emanating from this week's unusually hot weather patterns," said Jim Ritterbusch of Ritterbusch and Associates in Tuesday morning comments to clients.
"This is forcing the market to price in a downside injection in next week's EIA release that could easily fall south of 50 Bcf. Meanwhile, this week's report is unlikely to force much surplus expansion as our expected 53 Bcf build would only be 5 Bcf above the five-year averages. With the next couple of EIA [reports] spurring negligible surplus expansion, the market has been able to exhibit only limited response to next week's anticipated cool-down across a broad portion of the nation that is now expected to extend through the first one-third of August.
"With the market still trapped in a narrow $2.65-3.00 range that extends back to early June, significant shifts in coal-to-gas substitution have been limited. And although demand for power generation has been stout, production has also been comparatively strong, with the supply side of the equation receiving an additional lift from availability of Canadian supply. Although supply surplus against average levels has been established this summer, we will reiterate that the overage is relatively modest and insufficient to force much of an upswing in short hedging activity. And with the surplus unlikely to stretch much until the middle of next month at the earliest per the EIA releases, supply-usage balances are apt to keep the market confined to this summer's price parameters in offering limited trading opportunities from either side."
Gas buyers under the New York ISO grid will have all hands on deck as New York City braces for its second heat wave of the season. "Another summer swelter is in store for New York City, with the second heat wave of the summer for many locations," said AccuWeather.com meteorologist Alex Sosnowski. "Temperatures reaching 90 degrees Fahrenheit or higher are in the offing from Tuesday through Thursday and perhaps on Friday as well. Many locations around New York City experienced the first official heat wave of the summer during the middle of July. Central Park fell just short, while LaGuardia, JFK and Newark airports hit 90 F for three days in a row spanning July 19-21.
"Less humid air will settle in on Friday, with slight cooling arriving in time for the weekend. Temperatures have averaged about 2 degrees Fahrenheit above normal during July and near normal during June at Central Park. Temperatures in some urban areas may struggle to dip below 80 F during the overnight hours."