Physical natural gas for Tuesday delivery was up a few cents in Monday's trading as temperature forecasts at eastern points called for readings at or slightly below normal. Next-day power prices weakened, providing little incentive to make incremental gas purchases, and some New England points suffered double-digit losses.
The NGI Daily Spot Gas Average was up 3 cents to $2.45. Futures were no more inspired. The October contract fell 3.2 cents to $2.573 and November was off 3.4 cents to $2.642.
The low October trade at $2.550 represented the lowest spot futures since early June. The about-to-expire October crude oil surged $2.00 to $46.68/bbl.
In spite of the day's weak futures performance, market bulls may be able to take some consolation that the day's range of 4.6 cents was minimal and October volume was relatively light at 87,000 contracts. Trading may continue light, said a New York floor trader, who noted that Tuesday and Wednesday are Yom Kippur.
"We got down to $2.55 and I'm thinking $2.50 support, although $2.55 will be an initial support off that number,” the trader said. “Above that $2.75 is resistance. This is a perfect time to not use your air-conditioning.” Sunday night “we got down to the low 50s.”
Production flattened out this summer, but analysts caution against interpreting that as a sign that production is somehow faltering.
The “flat to declining production profile this summer suggests that a new dynamic might emerge," said BNP Paribas analyst Teri Viswanath, director of natural gas strategy. "We suspect, however, that the lack of supply growth this season is largely explained by preemptive curtailments rather than a trend change.
“If we are correct, the scale of production gains over the winter will likely surprise, limiting the scope of seasonal price recovery. With more supply available this winter, we expect stock levels to remain elevated, limiting the scope of price recovery during the first half of 2016.”
Rising gas exports and structural demand growth “should begin to outpace slowing domestic production, paving the way for accelerated recovery in the second half of 2016,” Viswanath said. “Based on our view of supply/demand balances, we have revised our 2016 price forecast lower from $3.30 to $3.15/MMBtu to reflect our expectation of a slow recovery.”
There were few changes in Sunday overnight weather model runs.
"Net demand changes were very minor overnight when combining both gas-weighted heating degree days and electric-weighted cooling degree days," said Commodity Weather Group President Matt Rogers in a Monday morning report.
"The general theme is a loss from Friday's forecast, thanks to continued warm weather deeper into October. Only minority cluster subsets of the main ensembles show colder pattern change potentials, possibly due to typhoon influences in the North Pacific. Otherwise, the warm pattern carries a steady-state consistency story.”
The changes from Sunday “were mainly in the warmer direction from the Midwest to the Northeast especially,” he said. “The Deep South is mixed with some warmer Texas shifts in the four-10 day, but some cooler leanings in the Southeast.”
California is expected to pull back; Burbank hit a record 104 on Sunday. “While warmer early in the six-10 day, the West then downshifts cooler for the back half," said Rogers.
Market technicians are looking at what they call a triangle continuation pattern formed by a declining trend from the market top at $3.105 and a rising trend line from $2.443 in April.
"The triangle is a continuation pattern, not a reversal pattern,” said Walter Zimmermann, vice president of United ICAP, in a weekly letter to clients.
“So triangles typically break out in the direction of the trend prior to the onset of the primary trend. In this case, that prior trend was down, [and] if the triangle is a continuation pattern then the implied downside target is the $1.885 area for a potential massive double bottom against the $1.902 low from April 2012."
Tom Saal, vice president at FC Stone Latin America LLC, in his work with Market Profile expects the market to test last week's value area at $2.770-2.658. Saal is not specific in his timing but said "eventually" the market should test $2.875-2.823.
The greatest changes in physical trading were seen at New England points where benign temperatures and low next-day peak power prices greased the skids for stout price declines. Intercontinental Exchange reported on-peak next-day power at the ISO New England's Massachusetts Hub dropped $11.02 to $31.04/MWh, and at the New York ISO's Zone G (eastern New York), Tuesday peak power fell $11.77 to $33.23/MWh.
Gas at the Algonquin Citygate tumbled $1.10 to $3.13, and deliveries to Iroquois, Waddington fell 14 cents to $2.92. Gas on Tennessee Zone 6 200 L shed 77 cents to $2.95.
Declines similar to those of the futures were seen at Gulf points. Gas on Columbia Gulf Mainline changed hands 2 cents lower at $2.50, and gas on Tennessee 500 L fell a nickel to $2.52. Gas at the Henry Hub was quoted 4 cents lower at $2.59 and parcels at Katy came in 4 cents lower at $2.56.
Temperature expectations didn't help Northeast points. AccuWeather.com forecast Boston's high of 68 degrees Monday would slip to 67 Tuesday and move higher to 72 Wednesday. The normal high in Boston in late September is 70. Providence, RI's Monday high of 70 was seen rising to 72 Tuesday and 77 by Wednesday. The normal high is 72.
The experience of Boston and Providence is not unique. Forecasts from the National Weather Service (NWS) confirm the overall benign outlook. For the week ending Sept. 26, NWS forecasts a total of 11 cooling degree days (CDD) for the East and Midwest combined. From New England, the Mid-Atlantic west to Wisconsin, the modest tally of 11 CDDs represents four less than normal.