Following Friday's sharply lower physical natural gas prices, deliveries for Tuesday proved to be a mixed affair.
Declines in the Midwest of close to a dime were nearly offset by double-digit gains in the Marcellus, as well as solid gains at major market hubs. The NGI National Spot Gas Average managed a loss of 2 cents to close at $1.88. A relentless parade of moderating weather forecasts continued to pummel futures traders, and at the close December was down 6.5 cents to $2.256 and January had skidded 4.2 cents to $2.448. December crude oil fell 45 cents to $46.14/bbl.
Utilities have used the recent low price regime to "stock up." Both months [October and November] we hedged our bets but didn't go more that 60%," a Florida utility manager told NGI. "You could say we took a bit of a position with our bidweek contracts."
The manager said he agreed with the argument that screen prices were not likely to trade lower than the $1.948 posted last Tuesday by the November contract.
"There's got to be a breakeven point where production stops and the supply is just not there anymore because you can't make any money on it. A lot of the natural gas comes from oil drilling where the natural gas is a byproduct, so that is probably what has allowed us to get this low. There still has to be a point where you can pay for new wells," he said.
Traders utilizing the CME's block trading platform, CME Direct, were dealt a setback Monday. According to reports, CME Direct was able to reopen four hours after it was shut on Monday due to a technical issue, the latest problem to hit the world's largest futures market operator and roil commodity trading.
Some brokers were not affected. "It's not CME Globex. When you do your block trades and strips, you use that. What most likely happened was all the business flowed to ICE [Intercontinental Exchange]," a California broker said.
A member notice posted shortly before 1 p.m. EST (1800 GMT) said the connectivity issue with CME Direct was resolved and that the platform was now available.
Physical prices were mixed. Gas on Alliance fell 7 cents to $2.01, and deliveries to the Chicago Citygate skidded 10 cents to $1.96. Gas on Consumers changed hands down 4 cents at $2.12, and gas on Michigan Consolidated was flat at $2.16. Parcels on Northern Natural Ventura fell 4 cents at $1.99.
Double-digit gains were seen in the Marcellus. Gas on Transco-Leidy Line was quoted 14 cents higher at 83 cents, and deliveries to Tennessee Zn 4 Marcellus added 17 cents to 86 cents. Gas on Dominion South, however, came in 95 cents, down 3 cents.
Major hubs put in mostly solid performances. Gas at the Henry Hub eased a couple of pennies to $1.92, but deliveries to El Paso Permian added a nickel to $1.83. Gas at Opal rose 7 cents to $2.00, and packages destined for the SoCal Border Avg. gained 13 cents to $2.09.
Forecasters are calling for near-term mild temperatures. "Going into the weekend, we were expecting warm high pressure to become established over the central and eastern U.S. to open the week in response to a colder than normal Pacific weather system dropping into the West with valley rains and mountain snows," said Natgasweather.com in a weekend update. "This is on track with warmer than normal temperatures setting up over the most important natgas demand regions of the Midwest and Northeast the next four to five days.
"The data also confirmed our expectations for the weather system over the West to exit late in the week through the central U.S., opening the door for colder Canadian air to follow across the northern U.S. this coming weekend (Nov. 7-8)."
Risk managers are beginning to test the long side of the market. "Natural gas continues to be pressured by moderate temperatures, mediocre demand and more than adequate supplies," said Mike DeVooght, president of DEVO Capital, in a weekend note to clients. "Also putting pressure on the gas market has been aggressive hedge selling in the deferred contracts as the market started to break the $3.00 level.
"As we look forward to the heat season, which can often be supportive to the gas market, demand expectations have been ratcheted lower because of the El Nino. On a trade basis, we have been looking for an opportunity to get long the natural gas market but have not felt like we have yet reached the bottom of this move. We started to buy the January contract as soon as it broke the $2.50 level."
In a weekly update, Wunderground.com meteorologist Bob Henson said, "Strong El Nino conditions remain in place. The weekly sea surface temperature reading, taken within the Nino 3.4 region near the equator, currently sits at 2.5 degrees C above average, the highest value observed to date during this event."
Tom Saal, vice president at FCStone Latin America LLC, in his work with Market Profile said he expected the market to test last week's value area at $2.363 to $2.243. "Eventually, look for the market to test $2.696-2.582 and $2.765-2.705," he said.